It’s that time of year again. Eyes are glued to the TV, Internet, and smart phones. Office chatter revolves around the latest action, “Did you see that?” and “Unbelievable!” continually being repeated. Even people who don’t usually follow along are talking about it. March Madness is here, but this week the mania has changed – the discussion is now revolving around the Federal Reserve’s latest decision and the following market action.

On Wednesday, the Federal Reserve lived up to most people’s expectation and removed “patience” from their latest statement. Many Fed observers had been waiting impatiently for this to happen. A removal of patience from the statements was viewed as being one step closer to raising interest rates. With sleight of hand, the Fed used to some additional wording that caught many of us off guard.

By saying “economic growth has moderated somewhat” from “growth is no longer solid” (in its January statement), the Fed went from being viewed as a hawk (removal of patience) to dovish. The Fed is telling us they don’t think that the economy is improving at the rate necessary for an interest rate hike in the near future.

Reaction to the Fed was volatile across the board. The U.S. Dollar was hit hard and foreign currencies rallied against it, the Euro hitting 1.100 for the first time in two weeks. The equity markets also moved higher, with the Dow moving up over 200 points after the announcement. With a view that the Fed will keep rates low for the near future, I expect to see the equity-index markets continue to move higher.

The Trade

  • I like buying the April E-Mini S&P 500 2120-2150 call spread at 9 points ($450.00) or better.
  • Full value of the spread at expiration on 4/17/15 is 30 points ($1500) if both strikes are in the money.
  • I am setting an initial exit target of 20 points.
  • If the market looks like it does not want to continue to move higher, I would look to get out with a loss of 4 points or less.
  • We are long premium, so risk is defined to the cost of entry plus fees and commissions.

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RISK DISCLOSURE: THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES AND OPTIONS TRADING.  THIS REPORT IS A SOLICITATION FOR ENTERING A DERIVATIVES TRANSACTION AND ALL TRANSACTIONS INCLUDE A SUBSTANTIAL RISK OF LOSS. THE USE OF A STOP-LOSS ORDER MAY NOT NECESSARILY LIMIT YOUR LOSS TO THE INTENDED AMOUNT.  WHILE CURRENT EVENTS, MARKET ANNOUNCEMENTS AND SEASONAL FACTORS ARE TYPICALLY BUILT INTO FUTURES PRICES, A MOVEMENT IN THE CASH MARKET WOULD NOT NECESSARILY MOVE IN TANDEM WITH THE RELATED FUTURES AND OPTIONS CONTRACTS.