Going long or short oil using Nadex Binary Options
In this video, we’ll show you how to go long or short oil in a limited risk/limited reward way using Nadex Binary Options. Let’s get started.
Once you’ve logged onto your Nadex trading account, on the top left hand side of the platform, click “Binary Options” and then “Commodities”. Under “Crude Oil” you’ll see the various expirations available. If you’d like slightly longer term exposure to the price of oil, click “Weekly” to display the list of available price levels (or strikes) of the binary options.
Next, click on the specific contract you’re interested in to populate a chart of oil as well as bring up an order ticket on the right-hand side of the platform.
On the order ticket you’ll see the specifics for the strike you selected: Will Crude Oil (Jun) finish higher than 15.25 @2:30PM (at the end of the week)? If you think yes, you click “Buy” and you’ll notice where oil will have to settle for a long position to be a profitable trade, indicated by the blue shaded area on the chart. If you think no, you click “Sell” and you’ll notice where oil will have to settle for a short position to be a profitable trade, indicated by the red area on the chart.
Notice that the expiration and the current indicative price of oil are displayed at the top of the order ticket. Furthermore, at the bottom of the order ticket, your potential max profit or loss is clearly calculated before you enter a trade, whether you’re buying (going long) or selling (going short).
Note that the prices you see reflect the implied probability at that moment in time that the prediction will be true, as priced by the marketplace. So, if you were to buy an oil binary at 65, at that moment in time the price reflects a 65% implied probability the binary option will settle in-the-money, making your prediction true. On the flip side, if you were to sell an oil binary at 65, since you’re taking a bearish view on oil in this case, your implied probability for a profitable trade would be 100 minus 65, or a 35% implied probability of your prediction, that oil will not be above that strike, being true. It is also very important to note that the prices (and therefore the implied probabilities) will constantly fluctuate as the price of oil changes and as time moves closer to expiration.
This brings up an important rule when trading binary options. Just because there’s an expiration associated with the contract does not mean you have to wait until expiration to see what happens. You can choose to close a position early if you’d like to lock in profits or limit losses. To close a long position, you’d simply sell it at the current market price. To close a short position, you’d simply buy it back at the current market price.
And there you have it. You can now leverage Nadex Binary Options to trade the price of oil, whether you predict it’s going up or whether you predict it’s going down.
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