The most suitable trading strategy for the November FOMC meeting
$Nasdaq Composite Index(.IXIC.US$ On November 2, the Federal Reserve's FOMC's penultimate interest rate meeting of the year will be the basis for market sentiment in the next month and a half.
Briefly describe the current market environment:
1. Halfway through the Q3 earnings season, the “strong industry, weak technology” pattern is more in line with the risk appetite of the current market. The growth period of software service gold has basically passed, and investors are more focused on companies with strong cash flow.
2. Employment and inflation are strong, and economic data can basically exceed expectations. This is the foundation for the Federal Reserve to dare to raise interest rates by leaps and bounds. Note, however, that economic data is mostly lagging behind.
3. Expectations of a recession are strong, as can be seen from transactions in the bond and capital markets, as well as financial reports from a large number of companies. Meanwhile, the strong US dollar has further allowed overseas capital to flow back.
4. The Federal Reserve actually lags behind the inflation curve, but the market is looking forward to “loosening the strings.” Recent updates to the Atlanta Federal Reserve econometric model suggest that the average interest rate on federal funds is more than 5%, but the market is beginning to worry that the Federal Reserve will tighten excessively. According to recent Federal Reserve sources, the Federal Reserve hopes that investors will be prepared to slow down the pace of interest rate hikes within a few weeks after the November 2 meeting, but not cause a continuous rebound in the stock market.
Briefly describe the current market environment:
1. Halfway through the Q3 earnings season, the “strong industry, weak technology” pattern is more in line with the risk appetite of the current market. The growth period of software service gold has basically passed, and investors are more focused on companies with strong cash flow.
2. Employment and inflation are strong, and economic data can basically exceed expectations. This is the foundation for the Federal Reserve to dare to raise interest rates by leaps and bounds. Note, however, that economic data is mostly lagging behind.
3. Expectations of a recession are strong, as can be seen from transactions in the bond and capital markets, as well as financial reports from a large number of companies. Meanwhile, the strong US dollar has further allowed overseas capital to flow back.
4. The Federal Reserve actually lags behind the inflation curve, but the market is looking forward to “loosening the strings.” Recent updates to the Atlanta Federal Reserve econometric model suggest that the average interest rate on federal funds is more than 5%, but the market is beginning to worry that the Federal Reserve will tighten excessively. According to recent Federal Reserve sources, the Federal Reserve hopes that investors will be prepared to slow down the pace of interest rate hikes within a few weeks after the November 2 meeting, but not cause a continuous rebound in the stock market.
The 75 basis point rate hike in November is basically settled, and the interest rate meeting may end:
1. Raise interest rates by 75 basis points to release hawkish messages
2. Raise interest rates by 75 basis points to release neutral messages (or no messages)
3. Raise interest rates by 75 basis points to release dovish messages
4. Interest rate hike by 50 basis points.
If (4) interest rates were raised by 50 basis points, it was a duly unexpected dovish. All indices would rise sharply, and there may be an increase of more than 3.5% on the same day. Since it directly affects US bond yields, some capital from the bond market will also flow into the stock market (as a balance).
If it is (3), the market will focus more on interpreting dovish information, because the 75 basis points in November are known and priced by the market. Dovish information includes raising interest rates by 50 basis points in December to slow down the rate hike, reduce the high point of interest rate hikes, start the decline in interest rates early (interest rate cuts next year), and include various “loose ends” that require continuous observation of macro data to continue to decide on interest rate hikes.
If (2) does not give any guiding information, then the market is more inclined to expect the Federal Reserve to maintain its most recent statement. However, the possibility of a sharp rise or fall in the market due to this is low, and the market will look forward even more to the decision of the FOMC meeting in December.
If (1) releases hawkish information, such as raising the end point of interest rate targets, raising interest rates at a faster pace, etc., the market will think that the Federal Reserve still has the primary goal of “controlling inflation,” and does not really care about the extent of the recession that may be caused.
Generally, the impact on the stock market is (1) negative; (2) not significant; (3) profitable; (4) extremely profitable.
Powell doesn't like to let the market speculate on his own ideas, so the possibility of not giving market guidance is extremely low. This conference is still very likely to cause major market fluctuations.
Well, the most suitable trading strategy for volatile markets is straddle (straddle).
For ordinary investors, directly choose index-related ETF options to trade the most cost-effective.
$SPDR S&P 500 ETF (SPY.US) $ is the most active target for options trading, followed by $NASDAQ 100 ETF-Invesco QQQ Trust (QQQ.US) $, and Dow related ETFs again. Since QQQ is mostly a technology stock, the volatility is also greater than SPY. Among them, QQQ's technology stocks are more sensitive to interest rate hikes. Take the November 18 monthly option as an example. Its IV is close to 35%, which is also higher than SPY's 26% level.
I. Cross-style combination of QQQ
Take the November 18 monthly subscription as an example. Put and Call with an exercise price of 275 dollars cost 1,610 dollars to buy at the same time. Of course, choosing the exercise price still depends on the circumstances at the time the order was placed.
If only until November 18, the maximum loss would be $1,610. But honestly, if you're looking forward to the FOMC meeting on November 2, there's no need to hold on that long. If the market closes on November 3, the break-even point should be around the two prices of $270 and $280, which means that fluctuations of around 1.8% can be balanced.
1. Raise interest rates by 75 basis points to release hawkish messages
2. Raise interest rates by 75 basis points to release neutral messages (or no messages)
3. Raise interest rates by 75 basis points to release dovish messages
4. Interest rate hike by 50 basis points.
If (4) interest rates were raised by 50 basis points, it was a duly unexpected dovish. All indices would rise sharply, and there may be an increase of more than 3.5% on the same day. Since it directly affects US bond yields, some capital from the bond market will also flow into the stock market (as a balance).
If it is (3), the market will focus more on interpreting dovish information, because the 75 basis points in November are known and priced by the market. Dovish information includes raising interest rates by 50 basis points in December to slow down the rate hike, reduce the high point of interest rate hikes, start the decline in interest rates early (interest rate cuts next year), and include various “loose ends” that require continuous observation of macro data to continue to decide on interest rate hikes.
If (2) does not give any guiding information, then the market is more inclined to expect the Federal Reserve to maintain its most recent statement. However, the possibility of a sharp rise or fall in the market due to this is low, and the market will look forward even more to the decision of the FOMC meeting in December.
If (1) releases hawkish information, such as raising the end point of interest rate targets, raising interest rates at a faster pace, etc., the market will think that the Federal Reserve still has the primary goal of “controlling inflation,” and does not really care about the extent of the recession that may be caused.
Generally, the impact on the stock market is (1) negative; (2) not significant; (3) profitable; (4) extremely profitable.
Powell doesn't like to let the market speculate on his own ideas, so the possibility of not giving market guidance is extremely low. This conference is still very likely to cause major market fluctuations.
Well, the most suitable trading strategy for volatile markets is straddle (straddle).
For ordinary investors, directly choose index-related ETF options to trade the most cost-effective.
$SPDR S&P 500 ETF (SPY.US) $ is the most active target for options trading, followed by $NASDAQ 100 ETF-Invesco QQQ Trust (QQQ.US) $, and Dow related ETFs again. Since QQQ is mostly a technology stock, the volatility is also greater than SPY. Among them, QQQ's technology stocks are more sensitive to interest rate hikes. Take the November 18 monthly option as an example. Its IV is close to 35%, which is also higher than SPY's 26% level.
I. Cross-style combination of QQQ
Take the November 18 monthly subscription as an example. Put and Call with an exercise price of 275 dollars cost 1,610 dollars to buy at the same time. Of course, choosing the exercise price still depends on the circumstances at the time the order was placed.
If only until November 18, the maximum loss would be $1,610. But honestly, if you're looking forward to the FOMC meeting on November 2, there's no need to hold on that long. If the market closes on November 3, the break-even point should be around the two prices of $270 and $280, which means that fluctuations of around 1.8% can be balanced.
2. Iron Condor
If you plan to hold it for a longer period of time, you can choose an off-price Call and Put for protection in the case of cross-style options.
For example, buy Put and Call at an exercise price of $275 at the same time, sell Call for $290 and Put for $260
If you plan to hold it for a longer period of time, you can choose an off-price Call and Put for protection in the case of cross-style options.
For example, buy Put and Call at an exercise price of $275 at the same time, sell Call for $290 and Put for $260
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