Wednesday’s release of the FOMC Minutes didn’t generate much of a reaction in the markets.  The release did contain some interesting points though. Two of the seventeen voting members wanted an immediate rate hike at the March meeting. Those members thought inflation and jobs strength justified taking action. They were outvoted, by concerns of “appreciable” downside risks and inflation could slip lower.  The committee seemed to be in agreement that a gradual approach would be best. The general outlook varied a bit, with some members mentioning April as a possibility for the next hike.

At first glance one might think that the hawks are starting to get a little stronger in their views. If one thinks the hawks are starting to spread their wings, one might think April is on the table for some more action. I think that is not going to happen, especially after the dovish talk from Chair Yellen last month. Prior to Wednesday’s Minutes, I thought June was off the table, now I think there might be a chance for another rate increase.

While the debate on any Fed action continues, I am looking for the E-Mini S&P 500 to be range bound for the near future. With that in mind, I am looking to use a strangle to play that range. I like selling the April E-Mini S&P 500 April Week 4 2000/2085 strangle at 10 points ($500.00). By selling the 2000 put and the 2085 call simultaneously, we are looking for the market to trade between the two strikes until expiration April 22nd.  We are collecting premium upfront, I am setting an initial exit target at two points. Break even occurs at ten points outside either strike, and then risk kicks in.  Check margins to make sure this trade is suitable for your account.

For those interested Walsh Trading is holding our weekly grain webinar Thursday April 7th at 3:00 PM Central time hosted by our Senior Grain analyst Tim Hannagan. Tim has been ranked #1 by Reuters and Bloomberg in 2011 and 2012 for his most accurate end of year price predictions for soybeans and corn. Registration is free and if you cannot attend live, a recording will be sent to your email upon signup.

John Weyer

Director of Commercial Hedging

Walsh Trading Inc.,

jweyer@walshtrading.com

 

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.