Wall Street indices soar as Powell’s Powell says rate hikes could slow this month

Wall Street indices soar as Powell’s Powell says rate hikes could slow this month

Major Wall Street indices soared on Wednesday after Federal Reserve Chair Jerome Powell said the central bank may slow the pace of rate hikes as soon as December, while also noting that bringing down inflation was a long battle.

The rally sent Wall Street indices soaring with the SPDR S&P 500 ETF Trust SPY closing the day higher by 3.14%.

If you had been following the financial press, you would have realized that market participants were watching out for the speech, as Powell's speech was a scheduled event. A major market movement was on the cards, and it was apparent that it was possible that a major market movement was on the cards.

If the market makes a significant move in either direction, one of the options would explode in value. In most cases, the resulting profit would cover the losses you made on the other option. Call options increase when the asset price increases and put options up when the asset price falls.

The maximum risk in this strategy is limited to the total price you paid for both options.

The SPY closed on Tuesday at 395.23, a day before Powell's speech, according to Barchart data. As part of the Long Strangle strategy, you could have bought the 394 strike put option expiring on December 1 at a price of $2.43, along with the 396 strike call option of the same expiry near its session-end price of $2.57. The total cost would have come to $5.

After Powell's speech on Wednesday, the SPY rally took the 396 strike call option to $11.89 at the end of the session. The 394 strike put option lost value and ended the day at $0.06. The total value of both options was $11.95 - a 139% return. It is recommended that you immediately close the positions and book your profit in such a trade. If the market continues to move in the desired direction, you will see part of the returns diminish because of theta decay or the loss of the value of an option.

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