Strategy · Event-Driven
FED DECISION PRE-POSITION
BullishDefined riskIntermediate
Overview
Position in Fed-rate-decision contracts 7-21 days before the FOMC meeting based on a model of Fed-funds futures, dot plot, and recent inflation/employment data.
Setup
- 1.Track Fed-funds futures implied probabilities daily via CME FedWatch.
- 2.Build your own probability for each meeting outcome from CPI, NFP, and FOMC speeches.
- 3.Compare your probability to the prediction market price.
- 4.Take positions where your edge exceeds 8 percentage points.
- 5.Scale into the position over several days to average price.
- 6.Exit on the day of the announcement before the press conference (avoid binary risk on Powell tone).
Max profit
$1.00 minus entry price; typical Fed-decision plays produce 20-60 cent moves.
Max loss
Entry price per contract; size to risk no more than 2% per Fed cycle.
Breakeven
Entry price.
When to use
When prediction-market pricing diverges from Fed-funds-futures implied probabilities by >5 points.
When to avoid
On meetings where your model and the market agree closely. During Fed-blackout periods when info flow is thin.