Introduction
If you’re interested in binary options trading, you’ve probably heard of Nadex. The North American Derivatives Exchange is one of the most popular platforms for trading binary options in the US. One of the strategies you can use on Nadex is the out-of-the-money (OTM) strategy. In this article, we’ll explore what the Nadex OTM strategy is, how it works, and how you can use it to maximize your profits.
What is the Nadex OTM Strategy?
The Nadex OTM strategy is a binary options trading strategy that involves buying binary options that are out-of-the-money. OTM options have a lower probability of ending up in-the-money, but they also have a lower cost. By using the Nadex OTM strategy, you can profit even if the underlying asset doesn’t move much.
How Does the Nadex OTM Strategy Work?
The Nadex OTM strategy involves buying binary options that are out-of-the-money. As mentioned earlier, these options have a lower cost than in-the-money options. You can buy OTM options with a strike price that is above or below the current market price, depending on whether you think the price will go up or down.
Let’s say you want to trade the EUR/USD currency pair. The current market price is 1.1200. You believe that the price will go up, so you buy a call option with a strike price of 1.1300. The option is out-of-the-money because the strike price is higher than the current market price. You pay a premium of $20 for the option.
Why Use the Nadex OTM Strategy?
There are several reasons why you might want to use the Nadex OTM strategy:
- Lower cost: Out-of-the-money options have a lower cost than in-the-money options, so you can buy more of them with the same amount of capital.
- Higher potential returns: Because OTM options have a lower cost, they have the potential to yield higher returns if they end up in-the-money.
- Less risk: Because OTM options have a lower probability of ending up in-the-money, they have less risk than in-the-money options.
Strategies for Trading Nadex OTM Options
Now that you know what the Nadex OTM strategy is and why you might want to use it, let’s explore some strategies you can use to maximize your profits:
1. Trade with the Trend
One strategy is to trade with the trend. If the price of an asset is trending up, you can buy a call option with a strike price that is above the current market price. If the price is trending down, you can buy a put option with a strike price that is below the current market price.
2. Use Technical Analysis
Another strategy is to use technical analysis. You can use indicators like moving averages, Bollinger Bands, and RSI to identify trends and potential reversal points. You can then use OTM options to trade based on your analysis.
3. Use News and Events
You can also use news and events to trade OTM options. For example, if a company is about to release its earnings report, you can buy an OTM option based on your prediction of how the market will react to the news.
4. Combine with Other Strategies
You can also combine the Nadex OTM strategy with other strategies, such as the straddle or strangle. This involves buying both a call and a put option with the same expiration date and strike price, but with different costs. This can help you profit regardless of which direction the market moves.
Conclusion
The Nadex OTM strategy is a powerful tool for binary options traders. By using out-of-the-money options, you can maximize your profits while minimizing your risk. Whether you choose to trade with the trend, use technical analysis, or combine with other strategies, the Nadex OTM strategy can help you achieve success in the world of binary options trading.
