I’ve recently gotten a lot of robo-ads for nadex.com. It’s a CFTC-blessed peddler of binary options and straddles. You can get in for $100. Price of a trade is a $1. Sounds great.
I put $100 down and did 3 trades, a few days apart, while I thought about it. Each trade was a spread. I lost a little money each time. I looked harder at the market each time.
I noticed that they print a time and sales report for options, showing price paid and type of option but not the price of the underlying at time of sale. You can’t price an option without that. I called them up and asked them about it. They scratched their heads and wondered why I would need such a thing, and told me they’d put it in the suggestion box.
Finally I extrapolated from the Time&Sales report that there is rarely anybody out there but the robo-market-maker. Which seems to be owned, both of them, by Nadex.com affiliates. I asked whether they market makers have better access to tick data. Of course they do. There’s an API. It’s complicated. I could get hooked up to that, maybe, if I wanted. It was too much for me to think about.
I looked at the depth of the market. Most of the time, there is no bid stack. It’s just the market making machine. The machine is good about creating a bid ask spread wide enough that, within the time frame of these short-dated options, it was highly unlikely that the option would cash. I even started worrying whether simply opening the ticket window and tentatively pushing Buy or Sell would start to move the market. I don’t think so, but that’s how I was starting to feel about the interface.
So in terms of trading my remaining $70, I will be looking for those rare moments when there is some kind of bid stack besides the market maker, where things are volatile, hopefully just after a news event, and then I will try to punt. But it really seems to be a game that can only work if you’re automated. Individual suckers, abandon all hope. I really got a lot of robo-ads, every web page I was on, Google AdSense going nuts on this topic I guess. They really want the rest of my $100. No more after that! We’ll see how it goes.
I have been inspired in all of this by being dragooned into two PowerBall pools in the name of festivity and funny ha-ha at work. $10 down the stupid tax drain, then another $10. I figured Nadex was a better bet than Powerball. I’m not so sure!