Podcast – Episode 130 – How To Trade (And Profit From) The FED

Podcast Transcript

Let’s talk about the Fed and more inmportantly how to make money from the Fed. How do we as passive traders, make money when the Fed is going to make an announcement? So a little bit of history, a little bit of background and when you’re watching this, but today, while I’m recording, this is May the Fourth 2022.

And today, we just had a Fed announcement, the Fed just came out made an announcement, they raised rates, they raised rates last month, they raised them again, and I want to talk to you about how the markets performing and how we could have made money off it. So now you got to understand in the past– last several years, markets have been doing great. The Fed was not important, right? The Fed had their meetings, they did their announcements, they raised rates, a load rate, whatever they mostly are just lowering rate didn’t raise that much over the last like, say 10 years. But the Fed was really important. We wouldn’t even notice as traders, when there was a Fed meeting today. Oh, okay. What happened? Oh, yeah, cuz nothing in the market habit, nothing changed didn’t make, you know, Marty was paying attention to what the Fed was doing. So we as traders didn’t have to pay that much attention. That changed in 2022, when the Fed said, Hey, we are going to raise rates, and we’re going to do it aggressively.

That changed the whole ballgame. Everything is different. Now. 2022 marks the time when the stock market returns back to normal. This is gonna be a normal stock market year normal trading year, where we go up and down and up and down. And it’s not just straight up anymore, because rates are zero, or very, very low or the keep going low. Okay. So in the past, since the last meeting, when they raised rates a quarter point, the Fed has been talking how the Chairman has been talking, the other governors have been going out and been talking, they put out articles, they put out interviews, they’ve gone in speeches, and they said, Hey, we’re gonna raise rates 50 points. In this next meeting, which was today, right, I’m gonna raise, we’re gonna raise 50 points. And they actually said it. And they’ve been telegraphing everything that they’re going to do up till now.

And up till now, I think the Fed myself, I think the Fed is doing a great job. We do have inflation, I get that. But those were things that were not in their control, right? You cannot control the COVID day, they cannot control the not having enough cars on the road. They cannot control the supply chain and the lack of truckers in California to unload all the chips and they can’t control that. So obviously, yes, there’s going to be some kind of invasion, some prices are gonna go up, and then they’ll even out and maybe they’ll come down or whatever. But they figured out hey, we need to raise rates. Cool. Awesome. Got it. So the raising rates couldn’t be zero forever, right? So now they’re raising rates, they told everybody, Hey, we’re gonna go 50 cents, at half a percent point 50 basis points, or half a percent, we’re gonna go up. And eventually, we want to get to two, two and a half. And so today, they made an announcement that said, Hey, we’re raising 50 cents, then Powell came out, he answers the questions. And he said, Yeah, hey, you know, inflation is there. But it might be peaking, you know, it might be stopping, or we might not, we’re gonna raise 30 points this meeting, and we’re gonna raise 50 points next meeting. And then we’re going to try to get to that to two and a half point, range. And we’ll see how it goes. Because more than a month out more than 60 days, we really can’t predict what’s going to happen. So we have to go month by month and and see what happens. Because that makes total sense, right? Sounds like a smart answer. Right? He’s not he’s telling you what they did and why. And he’s telling what they could do next. But later on, after that, he’s not saying anything, say, Oh, well, that’s a check to see, we’ll have to see. So kind of leaving the market on edge a little bit. But still, you know what’s going to happen? You know, what he’s going to do, and you know what the target is? So he’s telegraphing, he’s basically giving you the roadmap and saying here, this is what we’re going to do, there should not be any surprises, right? So you think, okay, he already told us what he’s going to do. And then he did what he’s going to do. Oh, that concept, right? Somebody actually lives up to his word. He did what he’s going to do.

And so the stock market should not have really done anything. It should not have been a non event, because everybody knew is already baked into the price. But what happened to the stock market today? Well, it’s up over 120 points. The s&p 500 was almost 3%, almost 3%. It’s about to close right now, in a couple of minutes. 3% On a day when you already knew what was going to happen, because he had already told you now if you don’t believe him, and a lot of Wall Street obviously didn’t believe him. Maybe they were expecting something else. Maybe they heard something that he mentioned, you know, there’s no way to tell.

And so for the people who were trying to predict and play today’s announcement, they got hammered. Because nobody expected a 3% move. Not the the options change, not the experts on Wall Street. Nobody expected 3% Move, but somehow we ended up up 2% Today, So, how should you have played this? How could you have made money on it? And how can you make money on the Fed in the future, it’s very simple. You make money on the fed by not losing money on the Fed. What do I mean by that? I mean, don’t play the Fed, if the Feds gonna make an announcement, you don’t want to be trading at that time. Basically, you treat it like earnings. Now, if you’ve been following me for any period of time, if you’re selling options and doing passive trading, we don’t trade earnings. Right, because you never know what’s going to happen in earnings, it’s uncertain, it’s high volatility. Don’t know what’s going to happen.

And so you can get blasted in either direction. Same thing with the Fed. This is now in stocks, the Fed is the most important thing to keep your eye on, listen to, to pay attention, they are the most important thing. If you’re even trading any stocks, the Fed is more important than how much money that stock is making that company is making how the chart looks on that stock, a Fed is more important than basically everything. You don’t fight the Fed. Right. That’s the same, it’s been around for a long time since they made the Fed.

And there’s a reason you don’t fight the Fed. Now, again, like I said, The Secret should not to making money off the Fed is not to lose money when the Fed made the announcement. Now, this is gonna go contrary to all the other option gurus out there that are telling you, hey, you need to be selling options when volatility is high. And volatility was high right before the Fed announcement. Because it’s uncertain, right? So they would have told you oh, man, go sell a calendar, go sell a strangle, straddle and do something, sell options when premium is high, when volatility is high, sell it, sell, sell it. And then what happened, they probably got their butts handed to today, 3% Move, nobody saw that. You know, you look at the implied moves and all that he was not there.

So it just goes to show you that if you’re going to play the long game, like me, right, I want to be doing this for next 30 years, 40 years, 50 years, I don’t know how long I’m gonna live, I want to keep doing it. I don’t want to get blown up. I don’t want to get my butt handed to me, for a stupid reason. And a stupid reason would be to go into a very high risk situation and put a trade on just to make a little bit of extra premium. So I would not trade today, I would not have traded yesterday, a day before I would wait till the Fed.. Hoopla is over. Right? Markets up almost 3%. Today. 2.99 is where it’s closing 2.99% Where today are to let the smoke clear. Let the market tell you when it’s going to do next. Then you place your trade. Yes, volatility will be down then.

And you’ll make less money for selling an option. But it’ll be safer. And in the long run, that makes more sense. Because option traders I have so many toxic people I’ve talked to they do good. They do good because you know it’s easy to sell high low delta options. Oh, yeah, probably isn’t my client. Yeah, great. Do that. Do that do that. Then the crash? Because they blow up because they make stupid moves like this because they’re told to do stupid things. So yeah, this is controversial in the markets and the other gurus don’t really like that. I’m saying this. Because they blow up and then they go away. And then a new guru takes her place. I’ve been around here for like 14 years telling you what to do. Teaching people what to do. So yeah, I’m still here. Maybe I’m doing something right. So if you want to make money on the Fed? Do’nt , don’t try it. Not worth it. It’s not worth the stress. It’s not worth the high blood pressure. It’s not worth the extra drink and all that extra yucky, Pepto-Bismol. You don’t want it. You don’t want the heartburn. You don’t want the stress, you don’t want the high blood pressure.

Okay. Put the odds in your favor. One of the ways you do that there are many different ways to do it. Not just one way. It’s not just probably the Prophet. Put the odds in your favor. One of the ways is by staying out of very risky situations, like a Fed announcement day. So there’ll be putting on trades trying to game it. If you’re going to put on a trade wait till after and then play it that way. All right? Hopefully this episode will actually help you and save you from some heartburn. All right, may the odds be in your favor. Take care


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