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Week of October 31, 2022

Tomorrow afternoon traders will get another look at how the Federal Reserve perceives the inflation situation, as well as its plans to manage interest rate hikes going forward. Below are the expectations in the options market, the bond market, and from a couple Wall Street firms.

November 1, 2022
Federal Reserve Meeting Preview

Tomorrow afternoon traders will get another look at how the Federal Reserve perceives the inflation situation, as well as its plans to manage interest rate hikes going forward. Below are the expectations in the options market, the bond market, and from a couple Wall Street firms.

And while the pricing/predictions below seem measured and well thought out, come tomorrow afternoon, once the announcement has been made and the market reacts, I can’t help but think we will all think either, “The Fed has been signaling more stock market pain to come, we should have been short,” OR, “The market’s rally of the last two weeks was signaling the bottom, and we should have been longer.” Essentially, it’s a total toss-up scenario, and we will adjust the portfolio based on the stock market’s reaction, as well as option activity and the VIX, after the announcement.

All that being said, let’s dive into the expectations …

The options market is pricing in a move of 2.6% between today and the close of trade on Friday. In my mind’s eye, that expected move feels light in comparison to previous Fed days, where the indexes have moved 3% or more a couple of times this year.

The bond market is pricing in the odds of a 75-basis point hike tomorrow at 88%, as well as a 12% chance of a 50-basis point hike. Essentially, expect a 75-basis point hike.

Moving forward, the bond market is somewhat split for the December meeting, as the odds of a 50- or 75-basis point hike is closer to 50/50.

To go even more in-depth on interest-rate forecasts, here are some research notes from two Wall Street firms ahead of the meeting:

Goldman Sachs -


JPMorgan – The market’s potential reaction to various scenarios:

  • 50-basis point hike, with a dovish press conference: “It is difficult to conceive of a scenario where this outcome occurs given inflation levels and a tight labor market,” the team wrote. “Should this outcome occur, the immediate reaction could produce a double-digit one-day return for equities.” S&P 500 up 10% to 12%.
  • 50-basis point hike and a hawkish press conference: An outcome that could stem from a Fed that is increasingly concerned about financial stabilities as it balances growth and inflation. S&P 500 up 4% to 5%.
  • 75-basis point hike and a dovish press conference: A scenario viewed as having the second-highest probability of playing out. “If you saw the Fed give explicit guidance for the December meeting, then that is likely viewed as a dovish outcome.” S&P 500 up 2.5% to 3%.
  • 75-basis point hike and a hawkish press conference: “This is the most likely outcome with Powell retaining optionality for December and 2023 meetings while emphasizing the current risks to inflation moving higher.” The team also views this as the outcome most expected by bond markets, so says there may not be a significant move in yields that keeps equities from melting down. S&P 500 down 1% to up 0.5%
  • 100-basis point hike and a dovish press conference: While this is seen as unlikely as a 50-basis point hike, it may mean the Fed both wants a higher terminal rate and wants to complete the tightening cycle this year. “Separately, the market may digest this move as the Fed having prior knowledge of next week’s CPI prints.” S&P 500 down 4% to 5%.
  • 100-basis point hike and a hawkish press conference: Considered the best outcome for equity bears waiting for this latest rally to dissipate. “Here this would seem to be a Fed reassessing its own inflation forecasts, which some investors feel is too optimistic.” S&P falls 6% to 8%, likely re-testing year-to-date lows.

October 31, 2022
Weekly Update
Ahead of the “big” Federal Reserve announcement on Wednesday, the market surged higher last week. The S&P 500 gained 4%, the Dow rose 5.7%, and the Nasdaq rallied 2%.

This week will likely go a long way to determining if this is yet another bear market rally that will soon fail, or the start of a sustained year-end advance. As always, it will be interesting!

Stocks on Watch

While mega-cap technology stocks got hammered last week and have been underperformers for most of the year, late last week, after a series of blow-ups, traders accumulated large premium call positions looking for a longer-term turnaround. Here are those trades, followed by the premium spent on each position:

Buyer of 35,000 Shopify (SHOP) January 25 Calls for $10.63 – Stock at 34 ($37 million)

Buyer of 10,000 Google (GOOG) January 87 Calls (exp. 2024) for $20.20 – Sock at 92.5 ($20 million)

Buyer of 4,000 Google (GOOG) June 95 Calls for $20 – Stock at 94 ($8 million)

Buyer of 9,000 Meta (META) June 90 Calls (exp. 2024) for $32.50 – Stock at 98 ($29 million)

Buyer of 3,000 Microsoft (MSFT) September 200 Calls for $47.95 – Stock at 227 ($14 million).

I will dive a bit deeper into the selling pressure on these former leaders in “What Traders are Saying” below, but wanted to bring these call buys to your attention in case you were looking for ideas.


The Chicago Board of Options Exchange Volatility Index (VIX) closed the week at 25.75, having slowly bled lower throughout the week. This is an encouraging sign for the market, and admittedly is somewhat surprising to me ahead of the Federal Reserve event Wednesday and the midterm elections next week.

Option Order Flow was fairly mixed this past week as my Options Barometer came in at:

Monday – 6
Tuesday – 5
Wednesday – 5
Thursday - 5
Friday – 5

Events for the Week to Come

The long-awaited November Federal Reserve meeting is finally here, as the Central Bank will announce another interest rate hike on Wednesday. Then, on Friday, traders will be focused on the October Jobs Report. And if that wasn’t enough, another 25% (approximately) of the S&P 500 will report earnings this week. BUCKLE UP!


What Traders are Saying

OK, I’m going to throw a theory of mine out there: Maybe, just maybe, Amazon (AMZN), Meta (META), Google (GOOG), and Nvidia (NVDA), part of the former FAANG grouping that led the market higher for years, finally falling is good for the rest of the market. Hear me out …

For years mutual funds and institutions poured money into these mega-cap tech stocks, as they were seemingly invincible. Virtually every trading and investing strategy had exposure to these stocks. Now, in 2022, they have fallen on hard times. Here are the losses:

AMZN down 38% year-to-date;

META down 70% year-to-date!

GOOG down 33% year-to-date;

NVDA lower by 53% year-to-date.

Now, if my line of thinking is sound, the massive amounts of money that are leaving these fallen stars needs to move somewhere. “I’m going to sell my AMZN and META positions, and move that money into IBM, MCD, CAT,” some traders might say.

This is kind of what we saw last week as AMZN and GOOG fell approximately 6% on earnings, while META crashed 24%. Yet in the face of those bloodbaths, the Dow gained 5.7% and the Russell 2000 (IWM) rallied 6%.

Of course, my theory could prove wrong if this one-week phenomenon reverses. However, it’s something I’ll be keeping an eye out for into year end.

Open Positions

Long positions: XBI, GOOG, M, OXY, PYPL, SBUX, CCJ, PINS
Bearish Positions: SPY

Biotech ETF (XBI) January 84 Call – The XBI gained 6.25% last week and looks ready to run again should the market continue its upside move. I like our call position should this bullish thesis play out.

Alphabet (GOOGL) February 120 Calls – GOOGL tanked on earnings, and I will likely sell the second half of this position in the coming days. Though as noted in “Stocks on Watch” above, traders aggressively bought calls looking for the stock to bounce.

Macy’s (M) November 20 Call (exp. 11/11) – M gained 8% last week, and all of a sudden looks really strong. We will continue to hold our position as is.

Cameco (CCJ) November 27 Covered Call – CCJ gained 2% last week, which is totally fine for our short volatility position. Much like M, we will hold our position as is.

Occidental Petroleum (OXY) December 65/80 Bull Call Spread – OXY gained 1% last week ahead of earnings on November 8. Our position is in great shape.

PayPal (PYPL) March 97.5 Call – PYPL rallied 2.75% last week, largely trading in-line with the Nasdaq. Earnings on Thursday will go a long way to determining the success/failure of this postilion.

Pinterest (PINS) March 25 Call – PINS gained 14% on Friday following an earnings beat. All of a sudden PINS looks like a standout in the muddy social media space. I like our position a lot.

S&P 500 ETF (SPY) March 420/320 Bear Put Spread – The market’s rise last week was positive development for the balance of our portfolio, though a negative for our hedge … this was a good thing. Regardless, our bear put spread is now at a potential profit of approximately 80%.

Starbucks (SBUX) January 85/110 Bull Call Spread – SBUX fell 5.5% on Monday as the company was hit along with many stocks with China-related exposure. In the days that followed the stock regained much of those losses. Earnings on Thursday will set the tone for the success/failure of this trade.

Jacob Mintz is a professional options trader and editor of Cabot Options Trader. Using his proprietary options scans, Jacob creates and manages positions in equities based on unusual option activity and risk/reward.