By: Tom Gentile
on May 3rd, 2022
Ask Yourself This Question
When we are coming in to an announcement from the Federal Reserve on what they are going to do with short-term interest rates – or the Fed Announcement, you may find yourself holding open options trades/positions.
Would you open this position today?
If so, one can make the decision to keep it open and see how it plays out.
If you say no, I would not open this trade, it might be your gut telling you to close the position(s).
It’s All About the Fed this Week
I really can’t show you a chart that is any different than the one I shared yesterday as the markets are in a down trend. They still feel soft and susceptible to more downside risk.
The last two days, though being bullish on the days, when looked at as part of the overall bigger technical picture looks more like consolidation thana pure reversal signal, (though yesterday’s hammer pattern may have been a short-term bottom).
The thing to not is tomorrow may be another flat to very narrow range trading day… UNTIL the fed announcement.
Not only is the announcement important, but the forward-looking statements from Chairman Powell are also going to be put under a microscope, analyzed to the nth degree and investors/traders will make their decisions based a lot off of what he says.
Will they raise 50-basis points? Will we get a 75-basis point hike. How many more rate hikes do they see needed and will they be of the 50-basis point variety.
They will say they are prepared to react according to how the economic data comes about.
Another thing people are awaiting to hear about is will they taper, how much of their bond buying is going to be pared back, if at all or to what degree.
Bottom Line for the Options Trader
We aren’t advocates of initiating new options trades going into the Fed announcements, but it is wise to evaluate your current open positions and ask yourself that one question… Would I open this trade/position today?
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