Using Nadex Spreads to Trade Crude Oil

TradingPub Admin | January 15, 2016

Responsive image

Crude oil has been on a steady downfall since October, and just broke the $30 per barrel mark yesterday. If you were a seller during this period, it’s been a very nice ride. Has oil hit rock bottom, or is there still room for it to slide? There are pundits on both sides of that question.

On Wednesday, January 8, Crude Oil was trading around 33.80 at the Opening Bell. Prices fell sharply, going all the way down to 32.64 by 11:30. Then the prices started climbing back up. Would the market go all the way back up to 33.80, or retrace briefly and keep falling?

Rockwell Trading does analysis on several indices and commodities for daily binary trading opportunities. Using their Power Crossover methodology, they publish buy or sell signals based on the agreement of several daily indicators, including a recommended strike price and historical probability of success. On this day, Rockwell was recommending a SELL on Crude Oil, with a Strike Price of 33.50.

Nadex Crude Oil Spread Trade

Looking at the charts, 33.50 looked like a good resistance level for selling Crude Oil. The 200 Simple Moving Average (SMA), shown in red, looked like it was acting as a decent resistance level on the 5-minute charts.  At 11:30, as the market was grinding its way back up, a working order was placed to SELL a Crude Oil spread from the 33.50 price level. Since the market was still below 33.00, it was time to be patient and wait for the market get up to 33.50 for the order to fill.

Nadex spread trades resemble traditional trading with the added security of capped risk and capped reward. The following working order was placed:

SELL Crude Oil 30.50 – 35.50 (2:30 Expiry)  This is a 500 tick spread. Every tick is worth $1.00, per contract
Price: 33.50  This is the price target to SELL from
Maximum Risk: $200  This is the difference between the Ceiling of the Spread (35.50) and the SELL Price (33.50)
Maximum Reward $300 This is the difference between the SELL Price (33.50) and the Floor (30.50)

Profit Target: 50 Ticks, or $50, per contract
Loss Target: 25 Ticks, or $25, per contract

The working order filled at 12:21. Within 10 minutes the market reversed and dove.At 1:25 pm. the trade was exited, having reached the 50 Tick profit target, resulting in a $50 profit (exchange fees not included).

As it turns out, this was a perfect exit for the trade. The market ground back upward shortly after the trade was exited, which would have resulted in a lesser profit at the 2:30 expiry.

Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.