Best way to play QE2 on Tuesday

Discussion in 'Trading' started by PaulRon, Oct 29, 2010.

  1. PaulRon


    I know very to little about options but what I think will happen is either a big move up or a big move down after the fed meeting. What's the best way to play this so the only way I lose is if the market stays flat?
  2. Up side should be limited. We're overbought. The economy is still crappy. 2% GDP! Good grief! [​IMG]
  3. jokepie


    There should be a Shake out of Shorts That DAY.... overbought - we all know that ... how about a little Halloween prank early morning and we sell off hard for the rest of the week.

    Again, what do I know.
  4. Your question centers on personal behavior.

    To make decisions and take timely action, it is extremely important to value what is unfolding.

    The highest level of consideration is the context of your behavior.

    News is my context.

    By understanding the order of events surrounding news, you are enabled to take advantage of the oppornities.

    My view is that I have three opportunities and the opportunities are linked to one another by their order of events.

    For me, the opportunities have to do with behavioral finance. Other posts here point out to you the variations in their potential behavior.

    Since there will be three linked opportunities, a plan, a strategy and a routine can be set up now to deal with these opportunities.

    My plan is to continue to be on the correct side of the market at all times.

    My strategy is to be in the market as the first opportunity begins. each subsequent opportunity demands the same strategy.

    My routine is to simply support my strategy by monitoring and analyzing the market before, during and after each of the three opportunities.

    I use the smart money as a guide for what I do since I front run the smart money and my profit segments are dictated by this phenomena.

    To go to where you are is the purpose of this thread.

    There are two sets of boundaries that fall into your considerations:

    The bounds beyond which the opportunities will not breach. These are telegraphed on the DOM. so watch that. they are called "walls". How a wall is measured is done by using time rate of change. A wall exceeds the TRC existant value on each side of the BBid/BAsk.

    The inner bound is the volatility of the market underthe specific news considerations. This leading information is VERY useful for you as a means of avoiding being trapped into joining the majority who have no market control. Take the time to always have in hand just who the majority and minority are. Sum their representation inside of the outer boundary. This will change for each of the linked opportunities as they come and go. A streaming ratio is very helpful since it has several degrees of freedom.

    The sum of the extracted profits in terms of one big DJ contract can range up to 900 points over the period of the three opportunities as they relate to FOMC type news.

    By observing the volatility shut down during the time before the announcement, you can gage the safety factor for the entry orders you will have on your platform. A multiple of the total bar volatility from formed MLR of recent bars is a good staring point.

    As you can see from other posters here there is going to be a ripple of values preceding the substantive moment of the announcement. you can also review a sufficient number of past news announcements to confirm this phenomena. It i like dogs stop barking before an earthquake is observable to human measurement devices.

    Your best action would be to stay sidelined and use this as a learning experience where you engender no personal risk.

    Notice most repondents to your query will be running on luck primarily since they will so sluggish, the opportunites will just roll past them and not even be ID'ed in the first place.
  5. charts


    IV collapses => sell
    Price unchanged => OTM, both
    Price changes => ATM, pick the opposite side of the move
    ... :)
    PS: Don't rely on unqualified advice! Study and learn for yourself, only then risk your money!
  6. mickmak


    Premiums on both sides will be pretty much priced in. Right after the announcement, the wrong side's premium will shed significantly greater than the right side. If you are thinking about buying a put and a call ATM (or OTM), I wouldn't recommend it. I would rather play the over reaction of the market.
  7. gobar


    i believe QE2 and FOMC is on wednesday>?

  8. Options are complex. If you don't know much about them, the best thing to do is to avoid them. But since you asked, I imagine that you want something more than an interminable recitation on personal behavior. :)

    As mickmak explained, buying a straddle (put and call with same strike) or a strangle (one of ea but different strikes) is a tough road since if premium has inflated due to an expected news event, it's going to deflate after the event and you need more underlying movement to overcome the premium loss on both sides. It's not unusual to see a modest move in the underlying yet a straddle loses due to IV collapse.

    If you expect price movement in either direction AND a collapse in implied volatility in a short period of time (the far month must also be inflated), a reverse calendar often does the trick for a very short term hold. Modest loss if no movement and a maximum gain of the credit received if there's a massive move.

    AFAIK, these are complex positions that require a lot of understanding so I think you'd be better off rising the news for whatever you can scalp.
  9. pspr


    Other than to stay long till New Years, you could pretend to be a bank and walk up to the FED discount window with some paper to loan them. Just say, I'd like some QE2, please. :D