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Fed Funds Futures aren’t pricing in a December interest rate hike

Friday, September 30, 2016 10:42
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Sell December Fed Funds Futures

The Federal Reserve has made it relatively clear that they intend to raise interest rates in the December meeting. Also, there were three dissenting members in the last meeting which is a rare occurrence and generally points toward a committee inching toward taking action.

We’ve noticed the market isn’t necessarily “buying” what the Fed is selling but we believe they will do exactly what they did in 2015; sneak in a holiday rate hike in an attempt to move toward normalization.

Accordingly, we like the idea of selling the December Fed Funds futures contracts near 99.52. The margin on this trade is low at $759 and we believe the upside is limited. Nevertheless, if something highly extraordinary happens we could test the Brexit highs, which would incur a loss of about $800. That said, if the Fed does raise rates, or if next week’s plethora of Fed speeches points toward a rate hike, the December Fed Funds futures contract should make its way toward 95.35; if seen this would be a profit of roughly $600 depending on entry and exit price.

This is a relatively slow moving trade. It won’t be exciting, but we like the odds.

Carley Garner
DeCarley Trading (a division of Zaner)

**There is substantial risk of loss in trading futures and options.** These recommendations are a solicitation for entering into derivatives transactions. All known news and events have already been factored into the price of the underlying derivatives discussed. From time to time persons affiliated with Zaner, or its associated companies, may have positions in recommended and other derivatives. Past performance is not indicative of future results. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Seasonal tendencies are a composite of some of the more consistent commodity futures seasonals that have occurred over the past 15 or more years. There are usually underlying, fundamental circumstances that occur annually that tend to cause the futures markets to react in a similar directional manner during a certain calendar year. While seasonal trends may potentially impact supply and demand in certain commodities, seasonal aspects of supply and demand have been factored into futures & options market pricing. Even if a seasonal tendency occurs in the future, it may not result in a profitable transaction as fees and the timing of the entry and liquidation may impact on the results. No representation is being made that any account has in the past, or will in the future, achieve profits using these recommendations. No representation is being made that price patterns will recur in the future.


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