Bull Spread Contracts
Every day, Nadex lists over 100 low-cost Bull Spreads based on stock index futures, spot forex rates and commodity futures.
The Nadex exchange is open 23-hours a day allowing you to take positions on major global stock index futures like our Wall Street 30 contracts, popular commodity futures such as Oil and Gold, and the major currency pairs including EUR/USD and USD/JPY, any time, day or night.
- All Bull Spreads are settled on the basis of an underlying market. For Bull Spreads on stock indices and commodities this is a futures market, while for Bull Spreads on forex the relevant spot rate is used.
- Every Bull Spread contract includes a minimum level (the 'Floor') and a maximum level (the ‘Ceiling’) at which the Nadex contract can be settled, no matter how far past either level the underlying market may have moved.
- We list a variety of contract sizes for Bull Spreads, the smallest being $1 per point market movement. The definition of a 'point' varies between different underlying markets. For example, Crude Oil is priced in dollars and cents, i.e. $104.58, whereas the Wall Street 30 is quoted as a whole number, i.e. 12212. In each case, one point is a movement in the last digit.
- Nadex requires you to fund the maximum risk of any trade before the position can be opened. This maximum risk is defined as the difference between your order level and the Floor level (for buyers) or Ceiling level (for sellers).
Expiration and settlement summary
When a contract expires, an Expiration Value is obtained by reference to the Underlying Market according to the following rules:
- Sample the last 25 trade or midpoint* prices in the Underlying Market
- Remove the highest 5 prices and the lowest 5 prices
- The Expiration Value is the arithmetic average of the remaining 15 prices rounded to one decimal point past the precision of the underlying market (with the exception of Wall Street 30, which is rounded to the same precision as the underlying market)
The market prices used by Nadex to calculate such Expiration Values are obtained through a data feed from Reuters. If Reuters is unavailable, Nadex may obtain market pricing data through Bloomberg or such other data provider as it determines appropriate under the circumstances. For contracts on Economic Events, the Expiration Value cannot be calculated as above; see Economic Events for more information.
*Midpoints apply to Spot Forex contracts; for more specific details reference the individual contract in the Nadex Rulebook.
Settlement: Bull Spreads
Bull Spreads are cash-settled contracts with a variable payout that allow trading on the expected direction of the Underlying Market.
The Settlement Value is obtained by reference to the Expiration Value and the Floor/Ceiling Levels of the individual contract:
- Expiration Value ≤ Floor: Settlement Value = Floor
- Floor < Expiration Value < Ceiling: Settlement Value = Expiration Value
- Expiration Value ≥ Ceiling: Settlement Value = Ceiling
Bull Spread contracts are comparable to traditional Call Option Spreads with strike prices equivalent to the Floor and Ceiling values.
Expiration schedules and Floor/Ceiling range widths
Nadex lists a wide range of Bull Spreads, expiring on a daily and an intraday basis. The timescale of these contracts can be as much as one day and as little as two hours and, as a general rule, the difference between the Floor and Ceiling level is smaller for those contracts with a shorter lifetime. As an example, the Bull Spread contracts based on EUR/USD might have the following specifications:
- Daily (one expiration per day, Floor-Ceiling range = 600 pips):
- Floor: 1.3300, Ceiling: 1.3900
- 5 hour / 8 hour (three expirations per day, Floor-Ceiling range = 250 pips):
- Floor: 1.3600, Ceiling 1.3850
- Floor: 1.3475, Ceiling 1.3725
- Floor: 1.3350, Ceiling 1.3600
- 2 hour (20 expirations per day, Floor-Ceiling range = 100 pips):
- Floor: 1.3550, Ceiling: 1.3650
- Floor: 1.3500, Ceiling: 1.3600
- Floor: 1.3450, Ceiling: 1.3550
This is just an example – the actual Bull Spread contracts for EUR/USD on Nadex may be substantially different from those above.
Comparison with underlying market
For Bull Spreads with a wide Floor/Ceiling range, the underlying market will generally be trading between the Floor and Ceiling values. The price of the Bull Spread in this scenario is likely to be very close to, or even identical to, the price of the underlying market.
In the case of Bull Spreads with a narrow Floor/Ceiling range, the closeness of the Floor and Ceiling levels means that the underlying market might be trading near (or outside) these levels. This results in prices that reflect a much higher degree of optionality, differing significantly to the price of the underlying market.
|Range Width||Optionality||Protection||Funding Requirement||Effective Leverage|
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