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Nadex Trade Of The Day- The Iron Butterfly Trade

TradingPub Admin | February 19, 2015

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If you have a busy daytime work schedule and can't follow the markets the way you would like to, here's a trade you can take on your lunch hour.  I have recently been following a strategy presented by Christopher Wall, Official Trader and Educator with the Binary Trade Group. After watching a couple of trades play out, and doing some back-testing, I decided to try it out in my Nadex demo account. After a half-dozen trades or so, I am very pleased with the results thus far.

Many traders avoid  trading at lunchtime because there is just not much volume in the market. With Nadex Binary Options, the "Iron Butterfly" strategy allows you to take advantage of low volume and a sideways-traveling market. While there are several strategies and indicators you can use, my strategy has pretty simple rules:

  1. Select the 11am-1pm EST time frame for the US 500 Index, which mirrors the emini S&P Futures Market (/ES).
  2. Draw support and resistance lines at the daily high (resistance) and daily low (support) prices for the market.
  3. Place a SELL order at the first strike price ABOVE daily resistance, and a BUY order BELOW the daily support line.
  4. Place a working/limit order that satisfies your risk/reward criteria. Since both of these pending orders are probably deep into the money. You may want to "leg into" this trade, and wait for the market to come close to you before you place your trade. The closer the market comes to your BUY and SELL strikes, the better your risk/reward will likely be.
  5. If both sides of your Iron Butterfly fill, it's time to manage the trade. If the market threatens one of your trade nearing expiration, you may wish to exit that leg to preserve some profit or minimize losses. The other leg will be good. If the market is chopping sideways between both strikes, then you may wish to just sit back, enjoy your sandwich and let both sides of the trade expire in the money for full profit.
  6. That's it. Straightforward and simple. Pleas bear in mind, there are a lot of ways to look at trading this strategy, and I highly recommend watching Christopher Wall's video at the bottom of this post. He does a great job of explaining Iron Butterflies in greater detail.

Let's take a look at yesterday's "Iron Butterfly" Trade: (February 18, 2015):

02 18 2015_IBF
IBF Trading Chart

Vertical lines were plotted on the Nadex chart (above) denoting the 11am-1pm time frame. Looking back on price movement for the day, Resistance was at 2095.5 and support was established at 2089.5. Using the rules described above, the following pending/working orders were placed:

Trade Details:

  • Contract: US 500 (Mar) >2095.5 (1PM)
  • Expiration: Wed Feb 18 13:00:00 EST 2015
  • Direction: SELL
  • Quantity: 5
  • Price: 25.00

Trade Details:

  • Contract: US 500 (Mar) >2089.5 (1PM)
  • Expiration: Wed Feb 18 13:00:00 EST 2015
  • Direction: BUY
  • Quantity: 5
  • Price: 75.00

Both pending orders were deep in the money risking $75 to make $25, per contract. Time to be patient and see what happens.

The SELL order filled at 11:25am, when the market peaked. For the next hour, the market moved down and then sideways. It didn't look like the BUY order would fill. At 12:40, the market dropped just down far enough to fill the pending BUY order. Now both sides of the Iron Butterfly are in the market. Time to manage the trade.

With 15 minutes left in the trade, it was time to manage the BUY side of the trade. The SELL side appeared safe. At 12:45, the market spiked up briefly, making the BUY contract worth $50. If this trade were a live trade versus a demo trade, the smart move might have been to exit the BUY order for a guaranteed $50 profit. But this was a demo trade, and I wanted to see how the market responded to my rules. At 12:50, the market came down further, threatening the bottom leg of the Iron Butterfly before running out of gas and expiring in the money.

Both sides of the Iron Butterfly expired in the money for a gross profit of $250.00, less $18.00 in exchange fees for a net profit of $232.00. That will buy a nice lunch!

There are a lot of ways to implement this strategy. With just 6 of these trades under my belt, I won't trade this strategy live until I have at least 20 demo trades under my belt. But it looks very promising thus far. Special thanks to Christopher Wall and the Binary Trade Group for exposing me to this strategy.

About Christopher Wall:

Christopher Wall is an official trader and educator with The Binary Group (BTG). He trades mainly Binary Options using the NADEX exchange. Additionally, he makes LIVE Calls on opportunities for members of the BTG private Facebook group on a daily basis, along with other BTG instructors.   BTG provides new and experienced traders with daily training sessions for trading Nadex Binary Options.training, and has helped so many in honing their trading skills.

CLICK HERE for more information about the Binary Trade Group.

If you would like to learn more about Nadex, or how to trade  Binary Options, please check out our free video library and learn why this may be an interesting new way for you to diversify your trading portfolio.
CLICK HERE  to test drive Nadex with a no obligation, free 2 week demo account!

Cheers,

The Trading Pub Team