Short August Fed Fund Futures
Updated
August Fed Fund Futures are currently pricing a 27% chance that the Fed will cut by 50 basis points or 0.5% at the end of July. ( The July 31st meeting to be exact). Historically the Fed has only cut interest rates by 0.5% twice before in its entire history. Once in 1999 (we know what was happening then) and once in 2007 (we know what was happening then). Today, we don't see the same froth and insanity we did in those two bubbles in credit or otherwise. If the Fed did cut by 0.5% in July then I would also sell equities like crazy because it would mean the Fed sees something really bad compared to what markets see. There is NOT a Fed meeting in August.
The strategy is to sell the August Fed fund futures down to 97.78 which is where the market is simply pricing in ONE cut of 0.25% for July, with a stop at 98 for the aggressive traders, but lower for the less aggressive. Fed futures provide huge margin, so you can make almost 3x your required overnight margin maintenance even if the fed just cuts once. IF THE FED DOESN'T CUT, then you can make even more.
The strategy is to sell the August Fed fund futures down to 97.78 which is where the market is simply pricing in ONE cut of 0.25% for July, with a stop at 98 for the aggressive traders, but lower for the less aggressive. Fed futures provide huge margin, so you can make almost 3x your required overnight margin maintenance even if the fed just cuts once. IF THE FED DOESN'T CUT, then you can make even more.
Note
Google search the Fed Fund Futures CME tool to do more what if testing on the various probabilities.
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