When trading American-style binary options, some of the assets that are available for trading are news events. This is quite unusual considering that news releases are not considered as part of the asset classes that are traded in binary options. However, NADEX offer traders the opportunity to trade news events on a yes/no basis.
On NADEX, two major news events are traded:
a) US Jobless Claims
b) Non-Farm Payrolls
These are two major news events that attract a lot of interest from traders and they are responsible for a lot of market volatility, since they are classified as news releases of high market impact. Released by the US Bureau of Labor Statistics, the US Jobless Claims is a weekly news release while the Non-Farm Payrolls is released on the first Friday of every month.
The underlying market for the US Jobless Claims report is the data on those who are applying for unemployment insurance (i.e. jobless benefits) for the first time. The data for this news release hits the markets every Wednesday at 8.30 am EST. During Daylight Savings Time, the report comes out an hour earlier.
The underlying market for this report is the data which reports the change in the employment numbers month-month in all sectors of the US economy except the agricultural sector. The data is released as a bundle along with the unemployment rate. The data is released on the first Friday of the new month at 8:15 am EST. The data is released an hour earlier when DST is on.
In order to trade these news releases successfully, certain tools must be deployed as a way of predicting how the trades will go, and then certain strategies can be used to trade the news releases. One such tool is the Google Index. This is an indicator of Internet job searches, which give some idea as to the number of Americans searching for jobs. Other tools come from the Gallup Poll, Institute of Supply Management and CBI’s Leading Economic Indicators. Gallup polls can be a source of expected employment numbers, serving as a predictive indicator for these news releases.
In trading the news events, careful note must be made of the following information:
a) Consensus (expected) numbers: What numbers are economists expecting? This information can be picked from the economic news calendar.
b) What has been the trend of the The Jobless Claims data in the last four weeks? The trend will determine the strategy that will be used. On NADEX, trending markets are traded with an ITM strategy. Sideways markets are best traded with an ATM strategy. More on this below.
c) What are the various predictive data saying with regards to the two news releases?
Strategies for Trading the News Releases
The following strategies can be used to trade the news results:
• If the trend has been for the Jobless Claims and NFP to beat estimates in the previous few weeks, an out-of-the-money (OTM) strategy using the consensus number as the strike price should be set. This trade should be setup on a Monday or Tuesday prior to the news release, as these are the days when trades that have unpredictable outcomes do well.
• If the most recent numbers disappoint, the strategy is to set in-the-money (ITM) trades. These trade types do best on Thursdays and Fridays.
• Conflicting results where the employment change and unemployment rate are in conflict, use a breakout strategy with strike prices located above and below the consensus numbers.
You can also attempt to draw a trend line using the previous 8 weeks of data and see if it possible to do so. If a trend line is formed and the data breaks out of the trend line, use an ITM strategy.
In a subsequent article, we will take our time to describe these strategies in detail.