Anybody been trading those?
Learn about Bull Spreads
Bull Spreads have a variable payout that lets you take a short-term position on the direction of a market. Their structure allows you to trade on where the price will go to intense price changes.
Underlying market
Bull Spreads are settled on the basis of an inherent market. This is generally a Futures market; for example, our Oil Bull Spreads are settled based on NYMEX* Crude Oil Futures prices. For more details, visit Contract Specifiions.
So, when you buy a Bull Spread contract you're taking a position that the inherent market will be greater when the contract expires. And when you market a Bull Spread contract you're speculating that the inherent market will be reduced in the time of settlement.
Limited risk: Floors and Ceiling
Each Bull Spread contract includes both a Ground and a Ceiling associated with it. These represent the minimum and maximum amounts at however far beyond either level the inherent market may have moved. The Ceiling and Floor values for each individual contract remain constant throughout the life of the contract.
Because the settlement range of a Bull Spread is defined, the maximum potential loss (or profit) is always known in advance.
Contract Ranges
Nadex delivers various bull spread contract ranges, with longer duration bull spreads with a broader range and shorter length contracts using a bigger range. By way of example, our 21-hour EUR/USD Bull Spread may have a range of 600 pips, with a Floor at 1.3400 and a Ceiling at 1.4000.
The 8-hour and 2-hour EUR/USD Bull Spreads each have a smaller distance between the ground and Ceiling and are staggered in overlapping ranges. While 8-hour Bull Spread for EUR/USD includes a range of 250 pips, the 2-hour EUR/USD Bull Spreads each have a range of 100 pips, such as follows:
(a) Floor: 1.3600, Ceiling: 1.3700
(b) Floors: 1.3650, Ceiling: 1.3750
(c) Floors: 1.3700, Ceiling: 1.3800
Contract size: $1 per point
All Bull Spread contracts are described like a 1-point (or 1-tick) movement means a $1 profit or loss per contract. By way of example, in the event that you sold them and bought 5 contracts your profit would be 5 x 35 x $1. In the event that you bought 10 contracts that were settled in a loss, you would lose 10 x 19 x $1 = $190.
So whenever you trade a bull spread, you know that a 1-point motion is worth $1 a contract for you.
The definition of a'stage' fluctuates between different inherent markets. By way of example, Crude Oil is priced in dollars and cents, i.e. $71.58, whereas the Wall Street 30 is quoted as a whole number, i.e. 10625. In each situation, 1 stage is a motion in the last digit, i.e. $0.01 for Crude Oil and one index point for the Wall Street 30.
To view the value of a'stage' for a given underlying market, please consult with the Tick Size value in the Stock Indices, Forex, and Commodities contract specifiions.
Trading Bull Spreads
If you start a position in a Nadex contract, then you don't need to hold it before expiry. You can log into the platform and enter an order to partly shut, or shut, your position at any time before expiry.
Funding
Nadex takes you to fund the utmost risk of any trade before the position can be opened. This maximum risk is described as the gap between your order level and the Floor level (for buyers) or Ceiling level (for vendors ) - therefore these amounts determine the funds needed to start a trade.
Comparison with inherent market
Assuming that the inherent is trading involving the Floor and Ceiling of a contract, the Bigger the Floor/Ceiling range and the shorter the time to expiry, the closer the price of the Bull Spread is into the price of the underlying.
For Bull Spreads with thinner Floor/Ceiling ranges or longer expiry occasions, or in cases where the underlying is outside the Floor/Ceiling range, Bull Spread prices will tend to reflect the optionality within the contract and be further from the price of the underlying. The thinner the Bull Spread range, the greater the protection against adverse moves, the higher the funding requirement, and the greater the leverage.
Overview
Range WidthOptionalityProtectionFunding RequirementEffective Leverage
WideLowLowerHigherLower
NarrowHighHigherLowerHigher
Expiry and payoff
Consider a EUR/USD Bull Spread with a Floor of 1.3400 and a Ceiling of 1.4000. If this contract reaches expiration and is settled against the inherent market, there are three potential scenarios:
Expiration Value is at or below 1.3400: contract is settled in the ground value of 1.3400
Expiration Value is between 1.3400 and 1.4000: contract is settled in the corresponding value between 1.3400 and 1.4000
Expiration Value is at or over 1.4000: contract is settled in the Ceiling value of 1.4000
Note: Floors and Ceiling values only apply to settlement, they don't behave as Stops or Limits and cannot trigger a position to be closed.