The Federal Reserve and the Bank of Canada both cut interest rates today. However, their comments were not as friendly as many had hoped, which caused some slowdown in the stock markets. Most major indexes ended the day slightly lower. The S&P 500 dropped by 0.2%, while the Nasdaq Composite fell by 0.4%. In contrast, the Dow Jones Industrial Average rose by 0.5%, the Russell 2000 increased by 0.4%, and the Toronto TSX Composite gained 0.1%.

Intraday Market Movements

There were significant changes throughout the trading day, especially after the Federal Open Market Committee’s announcement. These intraday shifts were clear on the market’s one-minute chart. The S&P 500 showed huge swings today, reversing a 1% gain to finish lower. This indicates how anxious the market is. The CBOE Volatility Index (VIX) spiked over 15%, closing above 21, which is its highest level in over a month. This suggests that we can expect options premiums to remain high in the coming weeks. The Fed’s mention of a “risk management cut” is key. It signals that this may not be the beginning of a long-term easing cycle. With job growth slowing to just 145,000 recently and core inflation staying stubbornly over 3%, the Fed’s next move is uncertain. This unpredictability makes directional bets with derivatives very risky. For traders wanting to protect their investments, buying put options on indices like SPY and QQQ is a simple way to hedge against a market downturn. A more economical option is using collars, which means selling an out-of-the-money call to fund the purchase of a protective put. This strategy sets a specific trading range, sacrificing some potential gains for added security.

High Implied Volatility

The high implied volatility also offers an opportunity for those who think the market will move sideways. Selling premium through strategies like iron condors on broad market ETFs could be rewarding if we stay within a set range. However, there is still a risk of a sharp breakout, so it’s wise to keep position sizes conservative. In July 1995, we saw a similar “insurance” cut that led to a period of economic growth and market gains. But that was during a time of low inflation, which is very different from our current situation. This historical comparison shows that while a smooth transition is possible, the future remains uncertain. Create your live VT Markets account and start trading now.

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