Just like in the rest of life, timing can be everything in the trading universe.

Short premium traders entering the market in the wake of the Financial Crisis can without question attest to that.

Given that timing is so important, it never hurts to enhance our understanding of when certain markets tend to move. Or, if there's no consistent historical pattern at all, that can be useful information as well.

Fortunately for us, Ryan and Beef decided to investigate this very topic and presented their findings on a recent installment of The Ryan & Beef Show. The focus of this episode explores a range of popular trading vehicles (S&P 500, crude oil, treasuries) as well as associated insights on any decipherable patterns in historical movement (monthly, daily, etc…).

In the case of the S&P 500, the research presented by Ryan and Beef basically contradicts the notion of "seasonality" in equities. Traditional (i.e. outdated) thinking often suggests that summertime in the financial markets is less volatile than other seasons of the year. However, the hard data doesn’t really support that.

Using the past 5 years of trading data in the S&P 500, Ryan and Beef illustrate on their show that the S&P actually has moved at least as much n the summer as it has in the other parts of the year. That means unlike many of those in the teaching profession, traders shouldn’t necessarily take the summer off.

The next asset that gets examined on the show is crude oil, and at the surface, the findings were similar to the S&P 500. Analyzing historical price movement in crude oil on a monthly basis yielded no decipherable trend in terms of volatility - every month of the year was roughly the same.

However, when looking at the data on a daily basis, the findings were a little bit more helpful. In this case, the numbers showed that Wednesdays and Fridays tend to be more volatile than the other three days of the week. A tidbit of information that may help you refine your strategy going forward.

As noted on the show, it's important to point out that on Wednesdays, crude oil inventories are released, a data point which is often used by traders to gauge demand/supply dynamics in the crude oil market. Likewise, Fridays may be more volatile than Monday/Tuesday/Thursday (on average) because many market participants are compelled to adjust their risk exposures before the weekend.

On the last portion of the show, the hosts decide to examine not just a single asset, but rather an event - in particular, the meetings of the Federal Reserve. These are gatherings of the nation’s top-level central bankers and occur about 8 times a year (note: special sessions can also be called at any time).

Traders usually follow FOMC meetings very closely, because they typically include a public announcement on the status of the American economy as well as related policy updates. Any changes in interest rates, and ongoing guidance related to interest rates, are also announced at this time.

In the case of the FOMC meetings, Ryan and Beef decided to look at whether there was a particular asset class that demonstrated above-average volatility during the trading days encompassing the meetings. This review illustrated that US treasury bonds, which are inversely correlated to interest rates, were the only group that exhibited heightened volatility during these periods.

The chart below summarizes the volatility of treasury bond prices across the timeline of maturities (short-term bonds, medium-term, long-term, etc…) during all trading days as compared to only days including an FOMC meeting. As you can see, the short-term and medium-term bonds demonstrated the greatest sensitivity (i.e. the biggest jumps in volatility):

News & Known Events

The graphic above shows that /ZT, which is the 2-year treasury note future, produced the largest increase in volatility, as compared to an average trading day. Given that the Federal Reserve is directly responsible for setting the short-term interest target, the above reinforces what you may have already expected, or observed.

What’s also interesting about this research is that equities and gold futures (/ES and /GC) exhibited no noticeable increase in volatility (on average) during meetings of the Federal Reserve. Depending on your outlook and risk profile, as well as ongoing market conditions, the above information may allow you to unlock new opportunities in the market.

In case you were wondering, there are four FOMC meetings left in 2018 - the dates are as follows:

  • July 31st - August 1st

  • September 25th - 26th

  • November 7th - 8th

  • December 18th - 19th

Ryan and Beef discuss some of their strategic thinking on timing the markets throughout the episode, and we recommend reviewing the entire show when your schedule allows. If you want to review the impact of FOMC meetings on the market, we also recommend this installment of Market Measures.

If you have any questions about trading patterns in the financial markets, or anything else, don’t hesitate to leave a message in the space below, or email us directly at support@tastytrade.com.

Any and all feedback is much appreciated, as it helps us shape future programming!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe. 

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.