tastylive logo
uploaded image

Nov 1, 2023

S&P 500 Higher After ADP Report, Ahead of FOMC

By:Christopher Vecchio - CFA

Also, 10-year T-note, gold, crude oil and British pound futures

  1. S&P 500 E-mini futures (/ES): +0.01%
  2. 10-year T-note futures (/ZN): +0.03%
  3. Gold futures (/GC): +0.02
  4. Crude oil (/CL): +2.67%
  5. British pound futures (/6B): -0.27%

Yesterday’s quiet session spilled over into today—no surprise for tenured traders who typically sit on their hands in the run-up to a Federal Reserve rate decision.

Options markets indicate a rather quiet afternoon as well, with less than a +/-0.8% move priced into the S&P 500 (/ESZ3) 0DTE contract. Elsewhere, geopolitical risk premium appears to be creeping back into energy markets, with crude oil (/CLZ3) tacking on over 2.5% through the session thus far.

Symbol: Equities

Daily Change

/ESZ3

+0.01%

/NQZ3

+0.02%

/RTYZ3

-0.37%

/YMZ3

-0.12%

The dollar moves slightly higher

Traders appear willing to take on some risk this morning as the Federal Reserve’s rate decision approaches. The dollar is slightly lower and bond traders are digesting refunding plans from the Treasury, which is pressuring yields and clearing the path for higher equity prices. S&P 500 futures (/ESZ3) rose about 0.3% ahead of the opening bell. November is typically one of the strongest months for stocks, but today’s policy announcement will dictate sentiment for now.

Strategy: (43DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 4170 p

Short 4175 p

Short 4250 c

Long 4260 c

53%

+332.50

-167.50

Long Strangle

Long 4170 p

Long 4260 c

51%

x

-7162.50

Short Put Vertical

Long 4170 p

Short 4175 p

58%

+87.50

-162.50

/ESZ3

Symbol: Bonds

Daily Change

/ZTZ3

+0.02%

/ZFZ3

+0.04%

/ZNZ3

+0.03%

/ZBZ3

+0.11%

/UBZ3

-0.11%

Private payrolls growth weaker than expected

After trading lower overnight, U.S. bond futures turned higher this morning after the release of the October U.S. ADP employment change report, which showed weaker-than-expected private payrolls growth last month. But attention is quickly shifting to today’s November Federal Open Market Committee (FOMC) meeting, where the Fed was expected to signal the rate hike cycle is finished. The 2s10s spread (the difference between the 10-year yield and the two-year yield) was last seen at -19.5 basis points (bps).

Strategy (51DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 104 p

Short 104.5 p

Short 108.5 c

Long 109 c

47%

+218.75

-281.25

Long Strangle

Long 104 p

Long 109 c

35%

x

-828.13

Short Put Vertical

Long 104 p

Short 104.5 p

80%

+125

-375

/ZNZ3

Symbol: Metals

Daily Change

/GCZ3

+0.02%

/SIZ3

-0.47%

/HGZ3

+0.45%

Gold and oil

Gold futures (/GCZ3) are moderating after two days of losses as Treasuries move higher after the Department of the Treasury announced plans to borrow less in the coming quarters. Precious metals were likely to remain in a holding pattern until the Fed announces its policy decision today.

Strategy (26DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 1965 p

Short 1970 p

Short 2020 c

Long 2025 c

27%

+340

-160

Long Strangle

Long 1965 p

Long 2025 c

45%

x

-3360

Short Put Vertical

Long 1965 p

Short 1970 p

65%

+190

-310

/GCZ3

Symbol: Energy

Daily Change

/CLZ3

+2.67%

/NGZ3

-3.10%

Crude oil prices (/CLZ3) are up nearly 3%, or $2.25 per barrel this morning, reversing the previous two days of price action. Yesterday, the American Petroleum Institute (API) reported a crude build of 1.3 million barrels for the week ending Oct. 31, but distillates and gasoline stocks were down 2.4 million and 357,000 barrels, respectively.

That suggests a rebound in fuel demand, which could translate to crude draws in the coming weeks and put the focus back on a tightly supplied market. The Energy Information Administration (EIA) will report its own numbers today.

Strategy (43DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 79 p

Short 79.5 p

Short 84.5 c

Long 85 c

18%

+380

-120

Long Strangle

Long 79 p

Long 85 c

48%

x

-5930

Short Put Vertical

Long 79 p

Short 79.5 p

59%

+200

-300

/CLZ3

Symbol: FX

Daily Change

/6AZ3

+0.28%

/6BZ3

-0.27%

/6CZ3

-0.02%

/6EZ3

-0.45%

/6JZ3

+0.20%

Bank of England to make rate decision tomorrow

British pound futures (/6BZ3) moved lower this morning ahead of tomorrow’s rate announcement from the Bank of England (BoE). Rate traders are pricing in a second consecutive hold for tomorrow’s meeting with around a 90% probability.

As with the Fed, traders are shifting their focus from the possibility of more rate hikes to gauging how long rates will remain high. Inflation in the United Kingdom remains stubbornly high, more so than in its major peers, with inflation clocking in at 6.7% year-over-year for September. Other signs that the Monetary Policy Committee (MPC) is looking at, including PMI figures, suggest a grim economic outlook. This puts the BoE in a tough position as it aims to support economic growth but also to crush inflation.

Strategy (37DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 1.18 p

Short 1.185 p

Short 1.235 c

Long 1.24 c

59%

+112.50

-200

Long Strangle

Long 1.18 p

Long 1.24 c

28%

x

-312.50

Short Put Vertical

Long 1.18 p

Short 1.185 p

87%

+50

-262.50

/6BZ3

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx 

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2023 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.