The Nasdaq emini futures is an underlying instrument for Nadex trading opportunities. Currently price is near a line in the sand level in the Harmonic Pattern world and where price is in relation to this level offers directional bias and until then a Nadex Bull Spread option has its outlaying parameters.
I’ve chosen an STRenko 12 bar for this intraday perspective. The chart shows that 3935.75 is a current high level that had an attempt to retest it as resistance. Price fell short of reaching this double top number & is pulling back to a symmetrical pull back target as shown with purple lines.
Since the 3854 low on this chart, there have been multiple pull backs of equal length in distance and now we see if this current pullback will also be that symmetrical move, which if it is, has correlation with the GRZ (Golden Ratio Zone aka the area between Fibonacci levels 38.2% and 61.8%). This offers clues as to probabilities in movement based on whether price is able to reach 3917.25 and if it does, whether it holds as support or resistance.
Currently price is in a pullback mode into support, that initial support target at 3917.25, a break down there has the ideal target of 3857.75, note this target helps retest that 3854 low. And there are scaling points or areas of potential bounce or reversal at the green fibs with emphasis at 3911.75, 3893 and 3881.25, so these levels become downside targets and areas to lock in some profits if trading multiple contracts, or an area to exit if you’re a trader who prefers the “All In, All Out” strategy.
Now, if price bounces off 3917.25, the initial resistance target will be 3935.75, above there has the ideal target of 3958 as an important place to scale or exit, but if you scale and price continues to the upside, the extended targets are 3971 and 3987.75.
The North American Derivative Exchange (Nadex) binary option that tracks the Nasdaq emini future is the Tech 100. Nadex listed binary options are CFTC regulated, completely transparent and allow for ease of entry and exit. Nadex listed binary options are an ideal tool for trading one’s market vision due to the easily quantifiable risk versus reward ratio.
Given that, let’s translate the above harmonic analysis into a binary option strategy. We will use the weekly Tech 100 binary that settles on July 25 at 4:15 EDT. And the position will have two binary options, one long and one short, to create a favorable risk/reward ratio.
The above analysis shows 3917.25 to be a key support level that could turn into resistance if breached. Nadex lists a binary option based on the September Nasdaq emini with a settlement price of 3918. The market in this binary at this writing (July 22, 1:30 EDT) is 78 bid, 82 offered. This means that the market as a whole believes that there is between a 78 and 82 percent chance that this level will hold. We will sell this binary at 78 which risks $22 to make $78. Remember, binary options settle at either zero or 100.
As said above, if the price 3917.25 holds then the initial resistance target will be 3935.75 with upside potential to 3958 and 3971. Therefore, we will look at the binary option with a settlement price of 3966. The market in this binary at this writing is 35 bid 38 offered. We purchase this binary at 38, leaving us in a binary option spread.
What are the possible outcomes on July 25 at 4:15PM?
A settlement price under 3918 makes $40 as both options settle at zero, thereby netting the $40 credit.
A settlement price above 3966 makes the position the same $40 as both options settle at 100.
A settlement price between 3918 and 3966 costs the position $60 so the position, based on the above harmonic analysis, risks 3 to make 2.
By Kathy Garber and Randall Liss
**Nothing written here should be construed as a recommendation or advisement to do any particular strategy or to sell or purchase any securities or derivative(s). All the content provided is for educational purposes alone. The strategies discussed are meant to teach a way of thinking about the market and using derivatives. The strategies are often time and price specific and cannot be replicated exactly in any case.