S&P 500 Trades Lower and Yields Are Up After a Long Weekend
The drop in U.S. Treasury yields and push higher in U.S. equity markets will have to wait another day if premarket trading conditions hold over the course of the session. All four U.S. equity index futures are lower ahead of the open amid a bump higher in yields following a slew of commentary from Federal Reserve and European Central Bank policymakers indicating rate-cut expectations have risen too high too quickly. Elsewhere, energy markets remain a potent source of volatility, particularly in the wake of recent price action in natural gas prices (/NGG4).
Symbol: Equities | Daily Change |
/ESH4 | -0.38% |
/NQH4 | -0.39% |
/RTYH4 | -0.86% |
/YMH4 | -0.29% |
Stocks are taking a breather at the start of the holiday-shortened week, pushing down through Friday’s lows in many instances. While the Russell 2000 (/RTYH4) is the leader lower amid a smattering of bank earnings, focus is on both the S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) as their recent rebounds have put them back within a stone’s throw of all-time highs. The earnings calendar is decidedly lighter over the next few days, as is the U.S. macroeconomic calendar.
Strategy: (45DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 4740 p Short 4750 p Short 4850 c Long 4860 c | 19% | +370 | -130 |
Long Strangle | Long 4740 p Long 4860 c | 50% | x | -5187.50 |
Short Put Vertical | Long 4740 p Short 4750 p | 63% | +150 | -350 |
Symbol: Bonds | Daily Change |
/ZTH4 | -0.09% |
/ZFH4 | -0.23% |
/ZNH4 | -0.33% |
/ZBH4 | -0.64% |
/UBH4 | -0.84% |
Warnings about premature rate-cut expectations from Federal Reserve and European Central Bank officials in recent days may be helping to provoke a shift in global bond markets after the long holiday weekend. U.S. Treasury bonds are lower across the curve, led by the long-end (30s (/ZBH4) and ultras (/UBH4)). Notably, the policy-sensitive two-year note (/ZTH4) has effectively erased all of Friday’s gains, implying a reduction of about eight basis points (bps) of rate cuts through the end of 2024.
Strategy (38DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 102.5 p Short 102.625 p Short 103.375 c Long 103.5 c | 32% | +140.63 | -109.38 |
Long Strangle | Long 102.5 p Long 103.5 c | 48% | x | -515.63 |
Short Put Vertical | Long 102.5 p Short 102.625 p | 88% | +78.13 | -171.88 |
Symbol: Metals | Daily Change |
/GCG4 | -0.39% |
/SIH4 | -0.57% |
/HGH4 | +0.90% |
A stronger dollar and elevated yields may be weighing against precious metals at the start of the week, with both gold (/GCG4) and silver prices (/SIH4) underwater this morning. But growth-sensitive, China-sensitive copper prices (/HGH4) are up nearly 1%, even as the Australian dollar (/6AH4) leads the FX space lower ahead of a trio of critical Chinese data releases in the coming days (gross domestic product, industrial production and retail sales). Volatility remains high in /HGH4 (IV Index: 18.7%; IV Rank: 66.9).
Strategy (41DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 22.8 p Short 22.95 p Short 23.85 c Long 24 c | 22% | +570 | -180 |
Long Strangle | Long 22.8 p Long 24 c | 44% | x | -4665 |
Short Put Vertical | Long 22.8 p Short 22.95 p | 58% | +345 | -405 |
Symbol: Energy | Daily Change |
/CLG4 | +0.07% |
/HOG4 | +1.35% |
/NGG4 | -10.56% |
/RBG4 | +2.20% |
Despite a cold snap and inclement weather gripping large portions of the U.S., traders are already looking around the corner to improved forecasts and punishing natural gas (/NGG4) in turn. Down more than 10% from its close on Friday, /NGG4 has seen a sharp uptick in volatility recently (IV Index: 74.7%; IV Rank: 77.7) that has curated the most alluring environment for options traders since March 2023. Elsewhere, crude oil prices (/CLG4) are holding onto recent gains as tensions in the Red Sea continue to run high.
Strategy (41DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 2.2 p Short 2.25 p Short 2.65 c Long 2.7 c | 33% | +340 | -160 |
Long Strangle | Long 2.2 p Long 2.7 c | 40% | x | -2050 |
Short Put Vertical | Long 2.2 p Short 2.25 p | 63% | +200 | -300 |
Symbol: FX | Daily Change |
/6AH4 | -1.28% |
/6BH4 | -0.79% |
/6CH4 | -0.44% |
/6EH4 | -0.74% |
/6JH4 | -1.16% |
The bump higher in U.S. Treasury yields is leading to broad U.S. dollar strength today. European Central Bank officials are pushing back against rate-cut hopes, not dissimilar to some of the commentary heard from Federal Reserve policymakers in recent days. Ahead of key Chinese data this week (gross domestic product, industrial production and retail sales), the Australian dollar (/6AH4) is the leader to the downside. The underperformance is notable given strength in base metals.
Strategy (52DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 0.64 p Short 0.645 p Short 0.675 c Long 0.68 c | 49% | +240 | -260 |
Long Strangle | Long 0.64 p Long 0.68 c | 33% | x | -590 |
Short Put Vertical | Long 0.64 p Short 0.645 p | 81% | +100 | -400 |
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
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