Arguably, the most important day of the year for the stock markets is right here. In about an hr, FOMC decision on interest rates will be announced. Almost everyone is expecting a 25bps rise!
Whatever the FOMC decision maybe, there is a speculative Option trade opportunity on either side. Though, I am bearish, the similar strategy can be used for bullish bias as well.
So in simple terms quickly, here is the trade-
Buy to Open a Broken Wing Put fly (What is a Butterfly Options Spread) for roughly $0.25 to $0.75 debit. Though it is slightly bigger range than I would ideally suggest, but for a bearish bias, it’s too good to pass. It consists of three options-
- Buy Dec 2020 Put
- Sell 2 Dec 200 Put and
- Buy Dec 1975 put
- All Dec Monthly Expiration i.e. Expires this Friday
Here is how risk/reward chart for the trade look like.
Here are the mechanics of the trade-
- Thus for 1 contracts it requires $2585 capital (Assuming $0.85 debit).
- Maximum risk is $585 (if S&P drops below 1980 by this Friday).
- I will lose only $85 if SPX remains above 2020 by this Friday.
- Maximum gains are about $1900+/- if S&P expires at 2000 this Friday (Don’t coun’t on it)
- IF however, SPX is anywhere between 1980 and 2020, this trade will bring solid gains.
Never ever violate money allocation principles. Allocate only what you can afford to lose 100%!!
WARNING: THERE IS A HIGH PROBABILITY THAT THIS TRADE WILL BE A COMPLETE WASHOUT (Don’t trade it after 1.45pm US Easter time i.e. 15 min before FOMC announcement).
Profitable Trading, OP
Disclaimer- This post is for entertainment only. Do your due diligence before investing any money or following this trade. Options are risk and you can lose all your capital in options.
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