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Nasdaq Pulls Back as Alphabet Earnings Disappoint

By:Christopher Vecchio, CFA

Also 10-year T-Note, Silver, Crude Oil, and Euro Futures

  1. Nasdaq 100 E-mini futures (/NQ): -0.74%
  2. 10-year T-note futures (/ZN): -0.16%
  3. Silver futures (/SI): -0.62%
  4. Crude oil (/CL): -0.04%
  5. Euro futures (/6E): -0.16%

Better earnings from Microsoft (MSFT) couldn’t offset mixed results from Snapchat (SNAP) and disappointing numbers from Alphabet (GOOGL), with the Nasdaq 100 (/NQZ3) leading the major U.S. equity indexes lower on Wednesday.

U.S. Treasury yields are rising again, with more bear steepening defining action thus far. The 2s10s spread (the difference between the 10-year yield and the two-year yield) is narrower by 10.5-bps to -18.6-bps. Precious metals are holding steady, as are energy prices, as concerns continue to swirl about potential escalation in the conflict between Israel and Hamas.

Symbol: Equities

Daily Change

/ESZ3

-0.43%

/NQZ3

-0.74%

/RTYZ3

-0.71%

/YMZ3

+0.22%

Meager results from Alphabet are defining price action on Wednesday, as the Nasdaq 100 (/NQZ3) leads to the downside. But the bump in U.S. Treasury yields is also laying waste to a familiar victim, with the Russell 2000 (/RTYZ3) not too far behind. Meta Platforms (META) and IBM (IBM) will report after hours, which could prove to be another catalyst before futures trading closes for the Wednesday session.

Strategy: (36DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 14300 p

Short 14440 p

Short 15100 c

Long 15200 c

30%

+1360

-640

Long Strangle

Long 14300 p

Long 15200 c

43%

x

-8100

Short Put Vertical

Long 14300 p

Short 14440 p

65%

+575

-1425

/NQZ3

Symbol: Bonds

Daily Change

/ZTZ3

-0.03%

/ZFZ3

-0.12%

/ZNZ3

-0.16%

/ZBZ3

-0.74%

/UBZ3

-1.05%

Higher for longer? Or is the Federal Reserve finished raising rates? Those questions may find additional clarity tomorrow when the 3Q’23 U.S. GDP report is released. Ahead of the report, which is anticipated to be very strong (consensus forecast of +4.3% annualized), U.S. Treasury yields are moving up across the curve, led once more by the long end. The 2s10s spread is now the inverted it has been since September 2022. Is this a recession signal, though? Typically, bull steepeners precede recessions. The current move has been an aggressive bear steepener.

A bull steepener is a shift in the yield curve caused by rising bond prices. The short end of the yield curve is typically driven by the fed funds rate and falls faster than the long end, steepening the yield curve. A bear steepener is a widening of the yield curve caused by long-term interest rates increasing faster than short-term rates.

Strategy (30DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 104 p

Short 104.5 p

Short 107.5 c

Long 108 c

46%

+234.38

-265.63

Long Strangle

Long 104 p

Long 108 c

35%

x

-640.63

Short Put Vertical

Long 104 p

Short 104.5 p

79%

+109.38

-390.63

/ZNZ3

Symbol: Metals

Daily Change

/GCZ3

+0.12%

/SIZ3

-0.62%

/HGZ3

-0.63%

Silver prices (/SIZ3) are down nearly 1% this morning as Treasury yields advance, although gold prices remain in positive territory. Traders might lean on shorting silver after prices started to decline from the monthly high last week. Metals traders are focused on a speech from Fed Chair Jerome Powell due this afternoon, although it should be noted that the Federal Open Market Committee is in a communications blackout window, so he may not speak to monetary policy in any significant manner.

Strategy (33DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 22.6 p

Short 22.7 p

Short 23.25 c

Long 23.3 c

57%

+320

-180

Long Strangle

Long 22.6 p

Long 23.3 c

46%

x

-5330

Short Put Vertical

Long 22.6 p

Short 22.7 p

57%

+235

-265

/SIZ3

Symbol: Energy

Daily Change

/CLZ3

-0.04%

/NGZ3

+1.26%

Energy traders are moving back into crude oil (/CLV3) this morning as the market await data from the Energy Information Administration (EIA) following yesterday’s larger-than-expected 2.68-million-barrel drawdown as reported by the American Petroleum Institute (API). Elsewhere, traders continue to monitor the situation in the Middle East as a series of earnings from petroleum companies approaches on Friday.

Strategy (52DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 80.5 p

Short 81 p

Short 85 c

Long 86 c

59%

+590

-410

Long Strangle

Long 80.5 p

Long 86 c

47%

x

-6820

Short Put Vertical

Long 80.5 p

Short 81 p

55%

+220

-280

/CLZ3

Symbol: FX

Daily Change

/6AZ3

-0.33%

/6BZ3

-0.29%

/6CZ3

-0.36%

/6EZ3

-0.16%

/6JZ3

-0.02%

Euro Dollar futures (/6EZ3) are advancing lower as prices extend the drop from monthly highs. Currency traders are focused on incoming speeches from Fed Chair Powell Jerome Powell and European Central Bank (ECB) President Christine Lagarde. The ECB is expected to halt its rate hiking cycle later this week.

Strategy (49DTE, ATM)

Strikes

POP

Max Profit

Max Loss

Iron Condor

Long 1.04 p

Short 1.045 p

Short 1.075 c

Long 1.08 c

46%

+325

-300

Long Strangle

Long 1.04 p

Long 1.08 c

35%

x

-900

Short Put Vertical

Long 1.04 p

Short 1.045 p

80%

+162.50

-462.50

/6EZ3

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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