Options Trading Strategies After The Fed Meeting

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Options Trading Strategies After The Fed Meeting
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• Hi, My name is Steve and Im with Options Trading
  Research, today were reviewing our recently
  published article

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• Options Trading Strategies After The Fed Meeting

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• Well, we can pretty much shut down for the year
  now, right? Arguably the biggest event of the
  year has come and gone, and its time for holiday
  vacation. No, Im not talking about the release
  of the new Star Wars movie, although that s
  certainly a huge deal to me.

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• Of course Im talking about the final Fed meeting
  of the year. Its the one where the Fed was
  supposed to raise interest rates for the first
  time in 9 years.
• Guess what happened?

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• Yep, the Fed raised interest rates. And now
  were back to waiting around for the next big
  market moving news item. It was pretty much as
  anticlimactic as would expect.

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• Im hoping thats the opposite of what Ill see
  at the premier of Star Wars tonight!
• Before we get to whats next, I wanted to remind
  you that I recently wrote an article on what
  options strategies you should avoid in 2016.

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• This is a good time to brush on those bits of
  advice.

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• So what options trading strategies should we use
  now that interest rates are higher?

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• First take a look at this chart of the SP 500
  SPX over the last year

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• The chart of the most important US stock index
  shows a big spike above the 50-day moving average
  after the Fed announcement this week. The crowd
  obviously was pleased with the results.

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• However, the benchmark index is only up about 2
  on the year. Thats hardly anything to write home
  about. The SP 500 even looks to be trending down
  a bit these last couple months.

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• Im not worried about a bear market in 2016 given
  the strength of the US economy. However, we may
  be in for lots of sideways action over the coming
  months as the Fed assesses the results of the
  rate hike.

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• So what options strategies should we consider?

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• For all intents and purposes, the Fed rate hike
  means very little for options traders. That is,
  unless you happen to be a bond options trader.
  Equities havent reacted all that much given
  were only talking about a quarter point hike.

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• The bigger news for options traders is the
  lessening of market volatility now that the big
  meeting is over. If you were hedging against a
  long volatility move, you can probably decrease
  or remove that hedge entirely.

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• Heres the thing 2015 was a big year for
  volatility. The average price of the VIX was
  higher than its been in years. Uncertainty over
  interest rates was one of the leading factors
  contributing to the higher volatility.

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• Short-term volatility may be lower because of the
  initial rate hike, but there are still a lot of
  longer term questions. When will the Fed hike
  next? Whats the central bank looking at
  specifically? Is inflation a concern?

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• As you can see, there are plenty of reasons to
  expect another extended period of elevated
  volatility. But, since I dont expect a major
  pullback in stocks, 2016 looks like another great
  year to write options.

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• Keep in mind, writing options in a high, but not
  too high, volatility environment can be a
  fantastic way to make money. As always, just
  make sure you have your risk levels under control
  and a solid exit plan in place. May the Force be
  with you!

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