Bank of Japan Trade Insight
17-09-24
Following a week with major focus on the world’s interest rates, the Bank of Japan (BoJ) has its second meeting since it raised interest rates on 31st July. Previously, the BoJ raised interest rates by 15 basis points to 0.25%; the Nikkei responded by recording its worst day in 37 years, and the CME Volatility Index (VIX) rose by 135%.
The BoJ is set to release its September policy statement on Friday, which may provide insights into future tightening measures.
Last month, BoJ Governor Kazuo Ueda stated that the central bank would continue to raise interest rates if inflation remained steady, while keeping a close eye on financial market conditions.
A CNBC survey revealed that 18.75% of participants anticipate a rate hike at the October meeting, with 25% considering it a possibility. Additionally, around 25% of analysts predict a rate increase in December, while 31.25% believe it to be a “live meeting,” indicating that the BoJ could adjust its monetary policy based on economic data.
Considering the impact of the previous rate hike, you may want to explore options for downside protection. The charts below indicate the impact on both the FTSE and S&P.
If you believe there could be a move in the coming BoJ event, then please view the below strategies.
Chart displays the S&P 500 year-to-date
Chart displays the FTSE 100 year-to-date
Put Option
FTSE Trade Idea
This short-term protective trade covers the data this week. This includes CPI tomorrow morning, FOMC interest rate, Bank of England rate, and the BoJ rate decision. The below trade expires on Friday, 20th September, at 10:10am and is cash settled.
FTSE Cash = 8315 (as of 17/09/2024 @ time of writing)
Total consideration of £200 (excl. fees + commissions)
Maximum loss £200 (excl. fees + commissions)
This strategy will break even if FTSE Cash = 8230 at expiry on 20-Sep-2024
If the FTSE settles at 8000 on Friday 20th Sep. The profit on the trade will be £2,300
Defined risk profile, maximum loss is equal to the net option premium paid + commissions and fees.
Put Option
S&P Trade Idea
On this trade idea, we have looked to cover the same as the FTSE trade idea, however, we have looked at a weekly expiry. Settling on next Friday, this gives more protection into the weekend and potentially movement next week.
S&P500 Dec Futures = 5723 (as of 17/09/2024 @ time of writing)
Total consideration of $1,500 (excl. fees + commissions)
Maximum loss $1,500 (excl. fees + commissions)
This strategy will break even if S&P Dec24 Future Price = 5620 at expiry on 27-Sep-2024
If the S&P is trading at 5400 on settlement Friday 27th Sep. The profit on the trade will be $11,000
Defined risk profile, maximum loss is equal to the net option premium paid + commissions and fees.
The contents of this article are for general information purposes only. Nothing in this article constitutes advice to any person and any investments and/or investment services referred to therein may not be suitable for all investors. If you’re unsure whether any investment is right for you, you should contact an independent financial adviser. For more information, please see IMPORTANT DERIVATIVE PRODUCT TRADING NOTES.
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