Well there you have it. The much anticipated June FOMC meeting came and went, without too much noise. It wasn’t exactly a letdown, but it didn’t provide the excitement that many had expected. The June meeting had been marked by many for several months as the time when the Federal Reserve would finally take some action. Unfortunately for them, that didn’t happen.
The Fed’s decision to leave rates unchanged wasn’t exactly a complete surprise. The May jobs data certainly gave reason to wonder if June was still on the table. Chair Yellen has repeatedly said that the Fed would rely on the date and economic numbers to direct their course of action. If you believed her, then you probably were skeptical of a June rate hike. The statement and commentary that followed didn’t exactly eliminate the July meeting as the time for action, but it sure didn’t give it a stamp of approval either.
“Playing the Fed” continues to be an interesting game. Speculation of up to three hikes occurring this year was common. Wednesday’s press conference tells us that scenario is unlikely, and the forecast for 2017 & 2018 are down. The jobs data for June and the Brexit vote in the UK are suddenly a bigger factor than originally viewed a few weeks ago. It almost seems like the Fed is treating data the same as a short term day trader.
With the uncertainty about the next course of action for the Fed, trading could be a choppy and have a hard time committing to a trend. I am going to try to take advantage of some back and forth moves by selling a strangle to collect premium. I like selling the June E-Mini S&P 500 Week 4 2100 call and the 2000 put at 18 points ($900.00) or better. These options expire on June 24th so we have week to be in the trade. I am setting an exit target of 3 points. Break even occurs at 18 points through either strike. Anything beyond that faces unlimited risk. Please check margins and make sure the trade is suitable for your account.
For those interested Walsh Trading is holding our weekly grain webinar Thursday June 16th 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.
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.
