How to Trade FOMC Meetings When the Fed Holds Rates Steady

📊 Understanding the Fed’s Role

The Federal Reserve (or “the Fed”) is the central bank of the United States, and its primary job is to manage monetary policy to ensure price stability and maximum employment. One of the key tools it uses is the federal funds rate, which it can raise or lower to either cool down inflation or stimulate economic growth.

Sometimes, however, the Fed chooses to hold rates steady. This typically signals that inflation is contained, the labor market is healthy, and the economy is operating close to its potential. In other words, the Fed sees no need to intervene—which often reflects a stable or even bullish economic outlook.

🤔 How to Trade the Fed Meeting When There’s No Expectation for a Rate Change?

It’s a common misconception that market-moving events only happen when the Fed surprises markets with a hike or cut. But even holding rates steady can offer insight and opportunity—if you know how to interpret the signals.

That brings us to the central question:
What are the best options strategies to trade when the Fed is expected to keep rates unchanged?

🔬 Methodology: Backtesting SPY Options on Fed “Hold” Days

To answer this, we ran a historical analysis using SPY, the most liquid and widely traded ETF tracking the S&P 500. Here's how we structured our study:

1. Identified every FOMC meeting since June 2016 where the Fed left interest rates unchanged.
2. On each of those days, simulated buying SPY call and put options across multiple strikes and expirations:
   • Days to Expiration (DTE): 1, 4, 7, 14, 28, 42
   • Delta: 10, 30, 50, 70
3. Held each option to expiration and calculated the PNL by cash-settling against SPY’s closing price.
4. Aggregated PNL data by delta and DTE to understand which combinations consistently outperformed or underperformed.

‍

✅ Summary of Results & Strategic Insights

🟢 1. Long Calls Outperform in Goldilocks Conditions

The best-performing strategies were buying call options with 28+ days to expiration and 30 or 50 delta. These trades reflected a bullish outlook and benefitted from the longer runway to capture upside momentum.

This aligns with broader market behavior: when the Fed holds, it often signals a “goldilocks” environment—where growth is steady, inflation is tame, and employment is strong. In such conditions, equities tend to grind higher.

📉 2. Short-Term Options Are Efficiently Priced

Options with short durations (1 to 7 DTE) had relatively small average PNLs, both for calls and puts. This suggests that the options market is highly efficient in the short term, pricing in Fed expectations with precision.

Implication: Traders looking for an edge on Fed “hold” days should consider longer-dated positioning rather than short-term speculation.

🔁 3. There’s Little Edge in Buying Puts

On average, buying puts on Fed hold days underperformed, particularly out-of-the-money strikes. This reinforces the idea that a “no-change” Fed typically coincides with a stable or rising equity market, reducing the profitability of bearish bets.

📌 Final Thoughts

While much of the attention during FOMC meetings goes to surprise hikes or dovish pivots, rate-hold decisions offer a powerful signal in their own right. They tend to mark periods of economic stability—conditions that have historically favored longer-dated, moderately bullish option strategies.

Using backtested data from Aion Finance, traders can better understand how to approach Fed decision days and position themselves not for surprises, but for repeatable patterns backed by historical outcomes.

👉 Want to analyze Fed-driven trades yourself?
Try Aion Finance and run your own data-backed strategy simulations across market events.

‍