Nasdaq 100 Gyrates as Traders Await Federal Reserve Decision
Nasdaq 100 Gyrates as Traders Await Federal Reserve Decision
Also two-year T-note, gold, crude oil and Japanese yen futures
Nasdaq 100 E-mini futures (/NQ): +0.07%
Two-year T-note futures (/ZT): +0.00%
Gold futures (/GC): -0.09%
- Crude oil futures (/CL): -1.50%
- Japanese yen futures (/6J): -0.52%
It’s Federal Reserve decision day, and traders everywhere, likely with coffee in hand, are bracing for market turbulence. No change is expected in the benchmark rate, but this decision comes with an updated set of economic and inflation projections, as well as rate projections that will map out where each member sees rates over the short to medium term.
The bond market movement as of late has reflected the hawkish shift in interest rate cut bets because of stubborn inflation and above-trend economic growth. But the question now is, will the Fed’s statement and summary of economic projections (SEP) surprise against these newly baked-in expectations? And can the artificial mania in stocks like Nvidia (NVDA) help carry the market despite the Fed?
Symbol: Equities | Daily Change |
/ESM4 | -0.07% |
/NQM4 | +0.07% |
/RTYM4 | -0.17% |
/YMM4 | -0.12% |
Nasdaq futures (/NQM4) were slightly higher at the open, slightly ahead of the S&P 500 (/ESM4), which notched a fresh record high yesterday. Intel (INTC) was granted an $8.5 billion contract to fund new chip plants, lifting the stock price nearly 1% in morning trading. Today’s Fed decision will be key for direction, with equity traders focused on the so-called “dot plot,” which displays members’ rate expectations.
Strategy: (41DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 18,000 p Short 18,100 p Short 18,600 c Long 18,700 c | 22% | +1,500 | -500 |
Short Strangle | Short 18,100 p Short 18,600 c | 53% | +12,100 | x |
Short Put Vertical | Long 18,000 p Short 18,100 p | 59% | +750 | -1,250 |
Symbol: Bonds | Daily Change |
/ZTM4 | +0.00% |
/ZFM4 | -0.01% |
/ZNM4 | +0.01% |
/ZBM4 | +0.05% |
/UBM4 | -0.07% |
Not much is going on in the Treasury market this morning, but that is hardly surprising as traders await today’s Fed announcement. The policy-sensitive two-year T-note futures (/ZTM4) is unchanged this morning. Bond traders are keen to hear how the Fed expects to handle its balance sheet going forward after the bank has accomplished some quantitative tightening by allowing Treasuries and mortgage-backed securities (MBS) to roll off. The Treasury will resume auctions tomorrow with 10-year TIPS.
Strategy (37DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 101.875 p Short 102 p Short 102.375 c Long 102.5 c | 21% | +171.88 | -78.13 |
Short Strangle | Short 102 p Short 102.375 c | 43% | +765.63 | x |
Short Put Vertical | Long 101.875 p Short 102 p | 85% | +93.75 | -156.25 |
Symbol: Metals | Daily Change |
/GCJ4 | -0.09% |
/SIK4 | +0.08% |
/HGK4 | -0.44% |
Gold prices (/GCJ4) are also unsurprisingly holding steady as precious metals traders also await news from the Fed decision. With the metal trading near all-time highs, the risks from the announcement might be tilted more to the downside. Higher yields from a hawkish tone could hurt gold prices, but if they hurt equities more, gold may show some of its safe-haven value.
Strategy (36DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 2,140 p Short 2,145 p Short 2,165 c Long 2,170 c | 12% | +430 | -70 |
Short Strangle | Short 2,145 p Short 2,165 c | 52% | +5,580 | x |
Short Put Vertical | Long 2,140 p Short 2,145 p | 72% | +160 | -340 |
Symbol: Energy | Daily Change |
/CLJ4 | -1.50% |
/HOJ4 | -2.37% |
/NGJ4 | -1.87% |
/RBJ4 | -1.44% |
While the fundamental backdrop for crude oil prices (/CLK4) remains supportive, prices dropped 1.5% this morning. Yesterday, the American Petroleum Institute (API) reported a 1.5 million barrel decrease in crude oil stocks and a 1.6 million barrel reduction in gasoline stocks, surprising estimates for both products. However, given the run in prices over the last week, some exhaustion was expected. Today traders will focus on the Fed and a government report on inventory.
Strategy (28DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 79.5 p Short 80 p Short 83 c Long 83.5 c | 22% | +370 | -130 |
Short Strangle | Short 80 p Short 83 c | 54% | +3,440 | x |
Short Put Vertical | Long 79.5 p Short 80 p
| 61% | +190 | -310 |
Symbol: FX | Daily Change |
/6AM4 | -0.11% |
/6BM4 | -0.14% |
/6CM4 | -0.12% |
/6EM4 | -0.14% |
/6JM4 | -0.52% |
Japanese yen futures (/6JM4) traded 0.52% lower to trade at fresh yearly lows as traders continue to punish the currency after the Bank of Japan (BOJ) failed to assuage policy hawks despite ending the negative rate environment. Now, the stronger dollar, is dragging the yen lower, which may introduce the risk of intervention from Japanese policymakers if the slide continues.
Strategy (44DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
Iron Condor | Long 0.0066 p Short 0.00665 p Short 0.00675 c Long 0.0068 c | 30% | +425 | -200 |
Short Strangle | Short 0.00665 p Short 0.00675 c | 55% | +1,425 | x |
Short Put Vertical | Long 0.0066 p Short 0.00665 p | 67% | +250 | -375 |
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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