How to Play Fed Rate Cuts on Tradesports
One of my best money-making tactics occurs on Fed interest rate decision announcement days, like today. I have a developed a huge-reward, low-risk method of trading these that has produced absolutely stellar profits over the last few years.
I haven’t found any other way of trading it than on Tradesports. Basically it is a volatility straddle, but you have to manage it well. I have not been able to successfully implement it in the options market. This is probably due to the fact that the financial market pros have the volatility figured into the premiums, while the market makers (and other players) on Tradesports still haven’t gotten clued into it.
Here is how it works. On Fed interest rate announcement days you purchase two way out of the money daily DOW closing contracts, one in each direction, sometime in the morning when the market is stable and the contracts are liquid at Tradesports.
The market won’t do much until the interest rate announcement, but when it hits the stock market is usually going to scream in one direction or the other. As soon as one of the contracts shows a nice profit for both positions taken, close that position! Now you can freeroll on the other trade, which probably won’t hit, or you can take your profits and buy a new contract about 100 points in the other direction - which is what I like to do!
So today for example, when the DOW was at doddling at -45 in the morning I bought the close -100 contract for 20 and the close +100 contract for 10. After the announcement, when the DOW had soared to +125 or so, I closed the +100 contract at 60 - more than doubling my risk for the entire position.
Now here’s the cool part. I then took the money I made from that 30-point profit and sold the +25 contract for 87. (Selling is how you open a position in the opposite direction - on this new trade the risk would be $130 to win $870.) Guess what? The DOW reversed hard and closed down -37. KACHING! It’s a beautiful thing.
I do this ever Fed day and make a big score like this about 30% of the time, break even or make a small profit about 50% of the time, lose about half the risk money 10% of the time, and lose the entire risk amount 10% of the time. It’s proving to be an extremely profitable tactic.
If you are interested in financial trading strategies for Tradesports.com (and other betting exchanges), you might consider picking up my book as I go into a lot more details there.
Technorati Tags: Sports betting, Fed rate cut, Interest rate, Stock market, Trading
