An arctic cold front is moving across the United States this week, and temperatures around the nation are expected to dip dramatically in the coming day. As temperatures drop, the population uses more fuels for heating, including natural gas, a commodity traded in the futures markets.
The daily chart below shows that Natural Gas futures have been rising in recent sessions in anticipation as the weather moving across the U.S. creates more demand for this heating fuel. There are often two ways to look at a market trending on this kind of supply/demand fundamental news.
On the one hand, traders could believe that that prices should keep going up as natural gas storage numbers will likely decline as weather gets colder. However, other traders could hold the view that this buying is overdone, and while this market is “buying the rumor”, ultimately there will be a “sell the news” effect, causing prices to drop in the near future.
No matter what view you may have, or even if you have a directional neutral bias or believe that this market will be rangebound, there is a strategy for you with binary options.
The table shows a listing of the weekly binary options on NatGas that expire this Friday at 2:30 pm EST.
Each one of these options has a $100 value per contract. When buying binary options, you expect for the futures settlement to be above the strike price of the option; and when selling the options you expect for the settlement to be below the strike.
When purchasing a binary option, the risk is the purchase amount, while the potential reward is the difference between the purchase price and $100 value. When selling these options, the selling price is the potential profit, while the risk is the difference between that amount and the $100 value.
For example, let’s say you are bullish NatGas, which is currently trading at 3.715. In that scenario, you could buy the 3.75 strike for $47.75, risking that amount to make $52.25 if the trade is successful and settles at or above 3.75. Alternatively, if your view is bearish, you could sell the 3.65 strike for $57.75, risking $42.25 to potentially earn $57.75 if this market closes below 3.65.
There are many ways to trade the Natural Gas market using binary options. Please keep in mind that these examples are not trading recommendations, but intended to demonstrate how binary trading offer a range of ways to increase any trader’s edge.
Note: Exchange fees not included in calculations.
Futures, options and swaps trading involve risk and may not be appropriate for all investors. Past performance is not necessarily indicative of future results.