Anticipating Fed Action with Binary Fed Funds Options

The CBOT writes, "binary options have two possible outcomes, and final contract settlement is either a fixed dollar amount or nothing at all. When the options expire, “in the money” options pay $1,000 to option holders, while those that are “at the money” or “out of the money” pay zero. Strike prices for the new CBOT Binary options correspond to the Target Federal Funds rate using a formula of 100-minus the actual Target rate. For example, a Target Federal Funds Rate of 5.25 percent would be reflected as 94.75. Expiring options are cash-settled and based upon the most recent Target Federal Funds Rate level established by the FOMC. The options will expire on the last day of a regularly-scheduled FOMC meeting.

Binary options on the Target Federal Funds Rate trade from 6:00 p.m. to 4:00 p.m. CT Sunday through Friday. Trading in expiring options ends at 2:00 CT on the final trading day. The Exchange has contracted with two firms to provide two sided markets for the new contract during daytime hours."

For more information, visit the CBOT's Binary Options and also read Anticipating Fed Action.

CBOE to Start Trading Stocks

The Wall Street Journal writes,

"The Chicago Board Options Exchange plans to start trading stocks early next year, in a move that follows in the footsteps of its biggest rival, International Securities Exchange Inc.

Like the ISE stock exchange, the CBOE's is being created in partnership with a number of trading firms who are taking a stake in it. In this case it's four firms that hold 45% of the exchange: Interactive Brokers Group LLC; LaBranche & Co.; Susquehanna International Group LLP; and Van der Moolen Holding.

Unlike the ISE stock exchange, however, the CBOE's exchange will include a trading floor -- made up of a currently unoccupied post on the exchange's options trading floor, CBOE Chief Executive William Brodsky said. The new exchange will be based on the CBOE's existing hybrid technology."

Beige Book

Market on the move upward in front of the FOMC minutes scheduled to be released at 2:00pm. General view is we will go to 5.5% on the Fed Funds rate in August and then pause. I always wonder if the Beige Book information is leaked before the 2:00pm official release. Moving the SNDK stop to 45.75 down from 47 just in case.

Is it ephemeral-financial-media-buzz or is it real?

Google Trends analyzes web searches to compute how many searches have been done on a particular topic and how frequently the topic has appeared in Google News stories. So, for example, if you're wondering if the topic of "stagflation" is appearing more frequently in the news and other media flabbergasts, you can check Google Trends to verify your inclination.

See also: Nouriel Roubini discusses the potential uses and caveats of 'Google Trends' as an economic barometer.

Kaiser SNDK

Kaiser, I called you before the opening to tell you we sold our long SNDK position at 46.20. We are not pigs and the great earnings number made us sell. We also put a small short position on SNDK @ 46.3 with a 47 stop. Note, someone upgraded SNDK and put a target of 60 on the stock.

This message is directed at the Kaiser only.

Tour de Investing

In What I learned watching the Tour, the FinanceProfessor parallels the steps necessary to win the Tour de France and successful investing.

Are future fed rate cuts implied in the yield curve?

Econobrowser makes a case (not necessarily one that we agree with) concerning the potential future course of fed rate actions by examining the shape of the yield curve.

Econobrowser writes,

If we were to trust the expectations hypothesis at the moment, what would it tell us? The initial sharp upward slope suggests that investors expect one more Fed rate hike to come soon, perhaps the next meeting. But the fact that the yield curve then begins to slope sharply down suggests that investors are betting on rate cuts later on-- otherwise, rolling over 6-month bills at 5.23% would beat any longer-maturity bets.

And what kind of scenario would have the Fed reversing course and starting to lower rates 6 months from now? Given recent inflation observations, it's hard for me to imagine the Fed lowering rates in the near future unless we get a significant slowdown in economic activity that makes it worry a lot more about the prospects of an economic recession. [more]

Chicken Little, its too good to be true

Nine out of ten times I wouldn’t jump in front of a freight train but today at the end of the day I Bought SPYTV @ 1.65. My stops are in as I’m currently underwater on this position. SPYTV’s are a very small hedge against my net long gains made today.

Message for fast money Mike

Kaiser and the gang

VHF traders were bidding below the market by sell premium, the VIX rose 1 point at the end of the day give us incentive to sell DIWTM, SPYTR. We closed by starting a buy write position buying SNDK @ 37.51 and selling the SWQHU @ 3.40. We plan to add to these positions hopefully at better levels. Have a good weekend guys and gal

Intended for the gang only

Pros Only

OK, bulls make money bears make money and pigs get slaughtered. Sell out and cover those scalp trades and be grateful you made a few coins. Earnings are the future engine of equities. From here on out its a 50/50 momentum trade, retracement Thursday is just as likely as continued momentum off the Bernanke rally.

K, Kaiser, Dave, The Gang

Pros only

Buy for scalper trades on 10 to 1 upside to downside volume. Short sellers will cover here but scalpers will sell take profits at the end of the day. Good trading. Don't forget your stops.

This message is for K, Kaiser, Mikey, and JB.

Ben the Dove

Fed chairman B should change his initial to D for dove. As the markets rally as helicopter Ben is back, no longer concerned about inflation dismissing the PPI and today’s CPI numbers. I know he said there might be room for rate hikes to end but what happened to data dependent? Hold everything! Perhaps he is just misunderstood, by putting on a dark brown suit Ben might look a little (very little) like a hawk once again.

The good thing for investors is every thing is up TODAY except the dollar. Gold, oil, and other commodities higher, a lower dollar equals higher prices when quoted in dollars. Equities also spiked but staying here is going to depend on earnings over the next 3 and half weeks

Make Your Own Global Market Index

We've been fooling around with an easy method to hand-roll your own Global Market Index.

Here's how...

Fading Market

Market looks weak as we enter a week where roughly 112 of 500 S&P companies and 11 of 30 DOW companies report this week. This talk that Israel will go for a cease fire agreement with its neighbors by pundants sounds like hot air to me as I hear nothing from the Israel. Cash is king mean and green but we continue bidding 1 to 2 percent below the market selling premium as the VIX continues to move higher.

Selling puts today

Sold DIWSM @ .30, Sold SPYSR @.65. These are 8 day trades that are the equivalent to bidding below the market. Sold the puts to take advantage of the increase in volatility to make .5% return in 8 days and or to own the market a percent or two lower from Fridays closing level. Effect is buying the below 2005 closing level in relative terms.

DIWSM = July 65 IWM Put
SPYSR = July 122 SPY Put

Note is directed only at JB, the Kaiser, and gang only!

200 Day Moving Averages (July 14, 2006)

S&P 500 200 day MA (moving average) 1264
DOW 200 day MA 10935
NASDAQ 200 day MA 2227

This is for you technical folks. Not a good sign technically, however, the talking heads are quoting indications of oversold. You make the call, VHF is selling July premium with strikes below the market (puts) on short duration and higher VIX = 18.65.

Oil

Oil is going to 80 dollars (currently @ 77.50) per barrel as demand remains high and tension in the world builds. Currently gasoline is 2.34 without taxes, prices at the pumps are going up this weekend.

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