Editor's Note

The Fed held rates and volatility eased: the account rose 0.35%

On Wednesday the Fed held the target range at 3.75–4.00% on a 10–2 vote, with Lisa Cook and Beth Hammack preferring a 25 bp increase. The statement said inflation remained elevated and upgraded its description of the economy to "strong". Indexes oscillated around the decision and Chair Warsh's press conference but closed higher. QQQ rose 0.60% to 725.61 and the Nasdaq-100 0.55%, while the S&P 500 gained 0.28% and the equal-weight S&P 500 slipped 0.04%: the advance was again concentrated in the largest companies. Semiconductors led after SK Hynix results: Broadcom rose 2.77%, Alphabet 1.34% and Amazon 0.59%; Nvidia fell 1.17%, Meta Platforms 1.24% and Apple 0.94%. The 2-year Treasury yield eased to 4.67% and the 10-year rose to 5.05%. After the close Microsoft rose in extended trading on results above expectations, while Alphabet fell about 10% on revenue below expectations and negative free cash flow; these moves were not part of the session result.

Volatility declined for a third session. VIX fell 0.61 points to 16.91 and VXN 1.13 points to 23.78; 30-day QQQ implied volatility (own calculations) eased from 21.74% to 20.75%, and the skew index was little changed at 27.8 (prior 27.6). VIX/VIX3M closed at 0.880 (prior 0.895); on the Convexa scale the regime stayed Normal. The front of the curve stayed richer: ATM implied volatility was 26.88% for the 29 October expiry and 25.21% for the 30 October weekly, against 20.75% at 30 days, as the market priced a premium for the Microsoft and Alphabet results and the GDP and PCE data. QQQ closed 0.22% below the model zero-gamma level (727.21), inside the transitional zone, so the negative-gamma modifier was removed.

The account closed the session 0.35% higher, against a 0.34% gain in SPY. The main positive contribution again came from the short long-dated puts, which lost value as the market rose and implied volatility declined. The short calls gained in value as QQQ rose and reduced the gain. There was an additional loss on hedges: ahead of the Fed meeting, additional short-dated protection was bought as a precaution; the decision did not produce a material move, and that protection expired worthless. Short-dated protection was rolled to the 29 October expiry, the day of the GDP and PCE releases. About half of the day's result came from the revaluation of the euro cash balance. Week to date (26–30 October) the account was up 12.86% (SPY +1.62%); month to date it was down 27.97% (SPY +1.27%), and since the start of the public record on 5 August the result was +10.84%, against +0.35% for SPY.

At the close the weekly QQQ straddle priced a move of ±1.49% to the Friday 30 October expiry (range 714.81–736.41), down from ±1.91% a session earlier. Ahead were the advance estimate of third-quarter GDP, personal income and PCE data and jobless claims on 29 October at 08:30 ET, Amazon results after the close on 29 October, and the Chicago PMI at 09:45 ET and the weekly QQQ expiry on 30 October. Apple reports on 2 November after the close.