Nasdaq Drops as Traders Brace for FOMC Decision
Nasdaq Drops as Traders Brace for FOMC Decision
Also 10-year T-Note, Silver, Crude Oil, and Euro Futures
- Nasdaq 100 E-mini futures: -0.41%
- 10-year T-Note futures (/ZN): -0.10%
- Silver futures (/SI): -1.36%
- Crude Oil futures (/CL): -0.51%
- Euro futures (/6E): -0.16%
Nasdaq futures (/NQZ5) fell Wednesday morning, dropping 0.40%, as traders de-risked ahead of today’s interest rate decision from the Federal Reserve. Traders overwhelmingly expect the Fed to cut interest rates by 25 basis points. However, the summary of economic projections (SEP) and Chair Jerome Powell’s testimony will likely command more attention. The housing market data disappointed, with building permits coming in below expectations for August. New construction also saw a drop from the prior month.
| Symbol: Equities | Daily Change |
| /ESZ5 | -0.08% |
| /NQZ5 | -0.40% |
| /RTYZ5 | +1.04% |
| /YMZ5 | +0.65% |
Chinese equities rose overnight, with positive headlines for several technology companies helping to lift sentiment. Alibaba (BABA) rose 2% in early U.S. trading, while Baidu (BIDU) gained over 6% through the first hour of trading. Nvidia (NVDA) dropped nearly 3% after The Financial Times reported that Chinese regulators are moving to ban domestic companies from purchasing their chips. The VIX moved higher for a fourth session, rising by about 0.5% this morning to trade around 16.5, indicating the growing uncertainty ahead of today’s Fed decision.
| Strategy: (44DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 23900 p Short 24000 p Short 24800 c Long 24900 c | 21% | +1455 | -545 |
| Short Strangle | Short 24000 p Short 24800 c | 51% | +16750 | x |
| Short Put Vertical | Long 23900 p Short 24000 p | 61% | +580 | -1420 |
| Symbol: Bonds | Daily Change |
| /ZTZ5 | -0.04% |
| /ZFZ5 | -0.11% |
| /ZNZ5 | -0.10% |
| /ZBZ5 | +0.05% |
| /UBZ5 | +0.13% |
Treasuries were also little changed ahead of the Fed decision, with 10-year T-Note futures (/ZNZ5) dropping by 0.10% in early trading. Prices are holding onto gains made from earlier in the month, with the expecation that the Fed will cut rates being largely baked in through the first couple weeks of the month. A dovish outlook from the Fed could induce more buying and lower yields, especially along the policy-sensitive short-end of the curve.
| Strategy (37DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 112.5 p Short 113 p Short 114 c Long 114.5 c | 31% | +328.13 | -171.88 |
| Short Strangle | Short 113 p Short 114 c | 54% | +1031.25 | x |
| Short Put Vertical | Long 112.5 p Short 113 p | 71% | +187.50 | -312.50 |
| Symbol: Metals | Daily Change |
| /GCZ5 | -0.12% |
| /SIZ5 | -1.36% |
| /HGZ5 | -1.35% |
Silver futures (/SIZ5) fell Wednesday morning but traders trimmed earlier losses as the day progressed. Prices are holding above the top end of a range traded through the first week of September before prices broke higher. The selling ahead of the Fed meeting likely reflects some de-risking by traders with the uncertainty of the Fed rate cut path clouding the outlook. Silver’s direction likely relies on how dovish the Fed comes out this afternoon. Ultimately, a lower rate environment should help the metal.
| Strategy (41DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 41.25 p Short 41.5 p Short 43.5 c Long 43.75 | 22% | +945 | -305 |
| Short Strangle | Short 41.5 p Short 43.5 c | 54% | +10595 | x |
| Short Put Vertical | Long 41.25 p Short 41.5 p | 59% | +560 | -690 |
| Symbol: Energy | Daily Change |
| /CLX5 | -0.51% |
| /HOV5 | -1.68% |
| /NGV5 | +0.93% |
| /RBV5 | -0.51% |
After hitting a two-week high on Tuesday, crude oil futures (/CLX5) pulled back 0.51% in Wednesday morning trading. Prices were driven higher earlier in the week by geopolitical tensions and possible supply disruptions in Russia after Ukraine targeted Moscow’s oil infrastructure. However, the market also expects more supply from OPEC through the rest of the year as global economic demand slows. Despite today’s drop, prices remain above the 21-day exponential moving average (EMA).
| Strategy (61DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 61.5 p Short 62 p Short 66 c Loong 66.5 c | 20% | +370 | -130 |
| Short Strangle | Short 62 p Short 66 c | 51% | +4400 | x |
| Short Put Vertical | Long 61.5 p Short 62 p | 56% | +210 | -290 |
| Symbol: FX | Daily Change |
| /6AZ5 | -0.25% |
| /6BZ5 | +0.01% |
| /6CZ5 | -0.07% |
| /6EZ5 | -0.16% |
| /6JZ5 | +0.01% |
After hitting a multi-month high on Tuesday, Euro futures (/6EZ5) fell 0.20% Wednesday morning. Dollar direction will likely be decided after today’s FOMC meeting, with a dovish rate outlook likely dampening the appeal for the Greenback, which could mean the Euro’s rally could resume following the interest rate decision. Meanwhile, European policymakers are neutral on the rate outlook, citing that adjustments will be made depending on economic conditions. This could give the U.S. a lower yield premium versus Europe and help the Euro to climb.
| Strategy (51DTE, ATM) | Strikes | POP | Max Profit | Max Loss |
| Iron Condor | Long 1.175 p Short 1.18 p Short 1.2 c Long 1.205 c | 29% | +412.50 | -212.50 |
| Short Strangle | Short 1.18 p Short 1.2 c | 55% | +2175 | x |
| Short Put Vertical | Long 1.175 p Short 1.18 p | 71% | +225 | -400 |
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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