Trading the Fed with Options

Focus: STRATEGIES

Jay Soloff Image Jay Soloff Lead Options Analyst, Investing Alley

If  you were to take a poll of investors who've traded options, you’d probably find the majority of them have traded single stock options, notes options expert Jay Sosoff, editor of Investor Alley’s The Market Cap.


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I'd venture to guess most investors think of options as a way to trade names like Apple (AAPL) or Tesla (TSLA). A handful of the people you poll may have utilized options on ETFs, particularly stock index ETFs. A smaller number still could have used options to trade commodity ETFs.

The interesting thing is, I’d be surprised if you came across more than one or two people at most who have used options to trade currencies, bonds, or interest rates. What’s surprising about this is how huge those markets are - far bigger than stocks in most cases. Yet, barely anyone even realizes how easy it is to trade them with options.

For instance, there are fairly straightforward ways to trade an upcoming Fed meeting using options. Keep in mind, the Fed or FOMC meeting is when the central bank decides what it will do with the key interest rate - called the Federal Funds rate. What happens with the Fed Funds rate will in turn impact every other interest rate, from Treasury bonds to mortgage rates to auto loans.

Now, you can trade futures and options (on the futures) on the Fed Fund rates directly listed by the CME (Chicago Mercantile Exchange). Those products aren’t really catered to the average investor though.

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