Posted in
Newsletter
By: Tom Gentile
on August 7th, 2024
Fed Day – FOMC Votes to Hold Rates
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Today the Federal Open Market Committee (FOMC) voted to hold rates where they are – no change.
That wasn’t a surprise.
What everyone is / was focused on was the Fed’s view on inflation and if they are going to give a more definitive signal they are going to perform their first rate cut in a number of years this September.
They, the Fed, changed their words a little bit in this recent new Fed report, such as they say job gains have ‘moderated,’ where last time they say jobs gains have ‘remained strong.’ Another example is they said inflation has eased over the last year but remains elevated to now saying it is ‘somewhat’ elevated.
Some may say even that minor of a change in dialogue is pretty much just saying the same thing he/they did last time.
What seems to be somewhat encouraging to the markets and helped the markets propel higher from the time of the announcement is Fed Chair Jerome Powell saying that if data continues to give the central bank confidence that inflation is slowing, they could be ready to move.
The PCE, which is the Fed’s preferred inflation gauge, showed a 2.5% gain year over year in June.
Couple that with expectations of the non-farm payroll numbers coming out this Friday, which economists are expecting a slowdown in hiring, and I see expectations seeming more and more likely that a rate cut could come our way when the Fed meets in September.
To your success,
— Tom Gentile
Markets in Focus: Invesco QQQ Trust (QQQ) aka the Q’s
Tools and Observations
We are in what I call ‘Earnings Sweet Week’
The reason I am calling it that is because a huge % of companies are announcing earnings this week. What do I mean by huge? 34% of S&P 500 companies are reporting this week alone!
Microsft Corporation, (NASDAQ: MSFT) announced after the close of market yesterday. Earningswhispers.com reports MSFT missed expectations by 1.99% all the while seeing their revenue grow by 15.20% on a year-over-year basis.
Other mega-cap tech names like Apple, Inc. (AAPL) and Amazon.com, Inc. (AMZN) are both due to report tomorrow, August 1, After Market Close (AMC).
A semiconductor stock Intel, Corp. (INTC) is also due to report earnings ‘AMC’ tomorrow.
What tends to happen is the Implied Volatility (IV) of an options gets pumped up going into the actual earnings annuncement.
My tools can show you ideal number of days and past history of IV and price percentage increase of stocks prior to an earnings announcement.
The thing to note is that causes one to have to pay more for the options on those if they are so inclined to want to perform an otpions trade on them.
Aother alternative for otpions traders is to stay away for expensive options if they are not already in on an options trade that is ramping higher already, that way one isn’t paying too much for their option.
A mre conservative approach is to recognize IV crushes or dereases a great deal after their earnings announcemnet and pursue a longer teim to expiration option when the otpions are deemed cheap.
Here is a reent llist of what are deemed/ titled Cheap IV. Cheap in the sens that the IV is closer to or at its 1-year Low IV ranking.
As you can see the top one on the list BKR has a current IV at 23.59, which is close to its low IV of 21.83.
Notice a couple of financial stocks are on this list if you are looking for cheap IV options opportunities away from large, mega-tech stocks and their hgih IV.
This isn’t a less plan on how to take advantage of a spike in IV nor is it really a heads up to NOT hold an option over and earnings announcement, though I am pretty sure the image below on how an IV crushes out of an option post an earnings announcement can derail an option trade like a long call for example.
What I am showing oyu all and educatin you all on is a way to search up Cheap IV options if you want to puruse those for longer duration opton trades. Thos in the 45+ day expiration variety.
Log in to the tools, Hover over Options > Options Rankers > Morning Report.
To your success,
— Tom Gentile
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