How to play options post-Fed decision

Yahoo

07-05-2025

00:00
Speaker A
Well, the Federal Reserve keeping interest rates steady, and Fed Chair Powell highlighting that the central bank's policy is in a good place until further clarity is comes amid increased economic uncertainty. For more and how investors can dip into the market post Fed, we have Vice President of options at Simpler Trading. That's Danielle Shay joining us for the Options Pit sponsored by Tastytrade. Danielle, thanks for being here. So, in the wake of that Fed decision and the press conference, um, what are you seeing in terms of volatility? What have you been seeing recently? And how should people maybe play it, uh, play sort of the broad market based on what's going on?
00:48
Danielle Shay
Well, the market's still trying to digest what was said today, but overall, I think that the move was largely positive. We're sitting around the highs on the day today. And what's really interesting is that in the options market this week, we've had options traders coming in and buying puts. And so what we're seeing is we're seeing some short covering. And, you know, when you have a Fed announcement and the news isn't worse than was expected, often times you can get that short covering, especially when buyers come in. So I'm looking at, uh, placing a butterfly in the SPX with an upper price target around 5700 for the end of this week as the market digests this move and trades a little bit higher with that short covering.
01:49
Speaker B
And Danielle, you also say for trade you like Bitcoin here to the upside. Walk us through the trade there.
02:01
Danielle Shay
I like Bitcoin for a longer term trade. If you look at the weekly weekly chart of Bitcoin futures, what you're going to see is just an absolutely gorgeous trend. It's consolidating. It has pulled back in the context of that trend. And if you throw some Fibonacci levels on there, you're going to see a price target of about $120,000 a coin. So I think that that is a great long-term price target. I'm talking about probably mid summerish, um, as far as that goes. And what I like to do is I like to trade this in the options market. There is an ETF called IBT, uh, that you can trade in the options market that is significantly cheaper and it allows options traders to get in and trade this ticker to the upside.
03:13
Speaker A
And so talk to me about the levels that you're looking at with, and I know that that when you're looking at it, you're not going to do the option on the Bitcoin futures. That goes on Ibit, which is the I guess the biggest ETF, right? That's, uh, that's cash Bitcoin for lack of a better word. Um, so what kind of strategy are you looking at there?
03:47
Danielle Shay
Well, when you look at this ticker right now, it's trading right around 55. And so what I like to do is I like to identify the upper price target. Um, in this case, that's going to be around $65. And so what I like to do is I like to place an at the money butterfly. You can also use an at the money call debit spread, but essentially what you would do is you would buy the 55 strike, and then you would sell the 65 strike because that would be your price target. And then if you want to make a butterfly instead of just a call debit spread, you would buy another strike equidistant up above. And what that does is it just it really brings your cost basis down. So for this kind of trade, you can get in for around $2.75 a contract. So that makes it accessible for a lot of different options traders. And of course, if you have a larger account then, um, that's when you can increase your contract size.
05:02
Speaker A
Danielle, I'm going to circle back around to the broader market to the S&P 500 specifically, where you were talking about that sort of potential upside here from there. But 5700 isn't that far above where we are right now. So I'm curious what you think that sort of longer term trend looks like, given some of the options activity that you've been seeing.
05:31
Danielle Shay
Of course. So for me, it really just depends how far this short covering can take us, because what we really need is we need a catalyst to get us through this area of overhead resistance. The 5700, 5750 level is a critical zone of resistance. And what we need is to get up to that zone and then be able to break through it on high volume. So for me, as far as the longer term plan, it depends entirely on if that can happen or not, because as you know, we have sell in May go away. Um, that can be a seasonal factor that comes through. We also have, uh, major catalysts like Nvidia earnings coming through. However, I am bullish Nvidia, and I love the segment that you just did right before me. So I'm hoping this is going to be a bullish catalyst for the market. Uh, but ideally we can get some bullish catalyst, break through that area of resistance, and continue correcting, uh, to the upside and retracing this move that we've had due to all the tariff fears.