Crude Oil binary options trade for Tuesday.
Crude oil (CLV14:NYM) is currently testing a bullish PRZ (potential reversal zone) for an Alternate Bullish Bat, the longer price holds above 92.27, the higher the probability of retracement mode attempt. This has a target of 93.34 and scaling point, aka a potential rejection point, at 92.68. I consider 92.68 a directional bias shift level because a hold above there invalidates a bearish cross and increases probability of testing 93.34 or higher.
A hold below 92.27 has initial target of 91.80 for a retest of the bottom of the PRZ. A break down of 91.80 has the extended targets 91.48, 91.23 and 90.73, so these become targets and potential bounce points once price arrives there.
So, watching price behavior at the underlying CL price of 92.27 offers clues as to which targets have a higher probability of being tested.
Given that view, that’s translate it into a viable trading strategy using Nadex listed binary options. We’ll use the daily options that expire today (September 9 10.45EDT) at 2:45PM EDT.
At the risk of stating the obvious, the reader will not be able to replicate this strategy exactly. What I am doing here is demonstrating the efficacy of Nadex listed binary options by way of a real time example.
We consider 92.68 to be a key support level which, if penetrated, will lead to a further decline. With CL currently at 93.25 there is a daily binary with a settlement price of 92.50.
The market in that binary at this writing is 90 bid and 92 offered. This means that the market as a whole believes that there is bwtween a 90 and 92 percent chance that CL will be above that level on expiration.
Given that binary options settle at either 100 or zero we will sell the 92.50 binary at 90. This means that we risk $10 to make $90.
At the same we’ll look at the binary option with the same settlement time and a settlement price of 93.50. The market in this option is currently 30 bid and 32 offered. We’ll buy this option at 32.
This gives us the following scenario: A close above 93.50 makes the position $58 as both binaries settle at 100.
A close below 92.50 makes the position the same $58 as both options expire worthless.
However, if CL is between 92.50 and 93.50 at 2:30 the position loses $42 as the short binary settles at 100 and the long binary settles at zero. Still, the trade risks $42 to make $58, a better than even money bet, in just a little less than 4 hours time.