SPX And NDX Price / Straddle Around CPI Reports February CPI Out Before Tuesday March 12 Open RUSSELL RHOADS, PHD, CFA Last month we got the first truly negative reaction to CPI from the S&P 500 (SPX) and Nasdaq-100 (NDX) to the monthly CPI report in over a year. Starting with SPX, the index fell 1.37%, much greater than the average move over the last twelve reports of +/-0.71%. To put the +/-0.71% figure in perspective, the average SPX change over all trading days covering the same period below is +/-0.59%. The big drop in SPX was painful for option sellers last month and we are keeping an eye on SPX premiums to possibly be elevated late Monday prior to Tuesday’s report. The SPX at-the-money (ATM) straddle was overpriced relative to the subsequent move ten of the last twelve CPI days. However, the two instances where the straddle was underpriced each resulted in substantial losses. Turning to the NDX, the average CPI-day move is +/-1.04% while the average NDX move on all days over the past twelve months is +/-0.82%. Last month’s drop of 1.58% is the biggest loss for NDX in over a year around CPI. Finally, NDX straddles have been overpriced for most CPI reports, but last month the straddle was underpriced like SPX. With inflation still a concern for many, the CPI report will be watched closely for an indication if the Fed has a clear path to cutting rates this summer. We will be watching the reaction as well as the derivative markets to see if the market outlook for lower rates in June changes after the report tomorrow morning.