Trading the Fed Rate Decision With Binary Options Strategies | Bullish University
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With trading the fed announcement with binary options FOMC meeting announcement set for 2pm ET today traders are beginning to evaluate possible trade setups trading the fed announcement with binary options of the announcement.
While there are many ways to trading the fed announcement with binary options the announcement one product offers a trader superior risk management and capital efficient exposure. Binary options allow for a trader to set up some unique reward to risk setups while also giving traders with smaller accounts access to exposure in equity indices, commodities and currency pairs.
To illustrate the flexibility and accessibility of binary options trading we are going to run through a simple trade analysis that a trader can use to trade catalyst events like the FOMC announcement. Before a trader can select a binary options trade they need to calculate what the markets expectations for movement on the catalyst are.
To determine what the expectations for underlying movement are a trader must use the traditional options market. After expectations are determined a trader can then use them to select a binary options trade. Nadex offers US binary options which settle based on the closing prices of the futures. We will use the futures options market and the binary options market to set up this trade.
To calculate expected movement in the futures we will look at the price of the weekly at the money straddle. The straddle is the price of the at the money calls plus the price of the at the money puts. This shows us the market makers best estimation of how much the market will move by options expiry.
Using these expectations a trader can calculate implied closes for this Friday and then use that information to set up a binary options trade. Using these targets a trader can now set up a more informed binary options trade. To get long a trader will select a trading the fed announcement with binary options options strike somewhere below and to trading the fed announcement with binary options short a trader could select a binary options strike above For the best results a trader would want to do this calculation as close to the release of the catalyst event as possible.
The expected move is not static, it is dynamic and can change at any time before expiration so a trader should always recalculate this move right before putting on a trade.
Using this method can help a trader select smarter binary trades ahead of catalyst events like the FOMC announcement and other macro events. James Ramelli is an trader and options educator at AlphaShark Trading, where he actively trades futures, equity options, currency pairs and commodities. As one of the moderators of the Live Trading Room, Ramelli educates members on strategies, trade setups, and risk management while trading his own capital.
Ramelli holds a B. The information contained above may have been prepared by independent third parties contracted by Nadex. In addition to the disclaimer below, the material on this page is for informational and educational purposes only and should not be considered trading the fed announcement with binary options offer or solicitation to buy or sell any financial instrument on Nadex or elsewhere.
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