How to Play Stocks Around the Fed Today

Last week I published an article entitled Buy this Trough as the Latest Fed Scare is Unfounded. I continue to expect the Federal Reserve’s FOMC monetary policy decision and press conference to reflect the mild message conveyed by Janet Yellen in her Jackson Hole speech and for stocks to move higher. However, the Fed Forecasts, which will be published today, have sunk stocks in the past and continue to threaten, though perhaps to a lesser extent now that they are better understood. Passive investors in the broader market ETF, the SPDR S&P 500 (NYSE: SPY) might want to hedge bets a bit. This article discusses tools for hedging event risk. Rather than placing a long or short bet on the SPY today, I suggest investors hold both call and put options to bet on volatility in the security, whether it move higher or lower. Your risk comes with the lack of a move in the SPY, but if the ETF rises or falls significantly, you should overcome option costs for profit today in my view. Of course, this trade offers lower upside than a naked long or short position. See the full report here.