Traders Expect Biggest Fed-Day Move in S&P Since 2023, Citi Says

(Bloomberg) — The options market is more concerned about a potentially big move in the S&P 500 Index off of the Federal Reserve’s interest-rate decision Wednesday than it’s been at any point in almost a year.

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The benchmark index is implied to move 0.95% on Wednesday, when the Fed gives its view on rates and Chair Jerome Powell holds his post-meeting press conference, according to an options strategy known as an at-the-money straddle, where traders buy an equal number of calls and puts with the same strike price and expiration. The last time traders priced in an FOMC-day move this wide was in May 2023, data compiled by Citigroup show.

Traders are pricing in a bigger stock-market reaction following tomorrow’s interest-rate announcement that they did at any point in the past 11 months amid a generally mixed earnings season, rising geopolitical uncertainty and concern that the Fed will keep rates higher for longer to tame inflation. The S&P 500 fell 4.2% in April in its worst monthly showing since September.

Options traders have consistently underpriced the magnitude of the S&P 500’s Fed day moves, Citigroup strategists say. Since the beginning of 2022, the broad equities benchmark has posted a bigger intraday swing than the straddle strategy has anticipated on every Fed decision day.

Read: Fed Rate Doubts Have Traders Covering Hikes, Cuts: Options Watch

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