Uncovering Setups in October CPI: Market Watching in the T-Minus Countdown

As the markets wait for the October Consumer Price Index to underpin future market sentiment and direction, investors are finding set-ups in this waiting period. The change in inflation usually provides direction to markets as the rate of contractions or increases in prices affects the monetary policy of central banks.

The October CPI, being one of the most important data points, sets the tone for current and future market expectations. As the expectation grows in the days leading up to the release of the October CPI, traders and investors look for set-ups in the market that can provide a certain edge. There are a few strategies that traders and investors usually pursue in the waiting period for the CPI.

Firstly, shorting volatility is probably the most common strategy deployed when the markets are waiting for a CPI announcement. Shorting volatility implies selling options that generate income in a period of low volatility. This strategy can be implemented in stocks, commodities, Forex, and even cryptocurrencies. For example, in the Forex market, traders can focus on certain currency pairs and at-the-money options and look to bank a bit of income from the waiting period.

Secondly, another possible set-up can be found in the Futures market. Here, traders usually add to their long positions. This strategy involves going long on certain stocks or indices depending on macro-economic data and adding to one’s long position while waiting for the CPI to be released.

Thirdly, traders can also look at calendar spreads. Here, traders can buy near-term options of a certain asset and sell longer-term options of the same asset. This will usually bank the trader a positive credit and it also helps the trader in generating income from the differential of the premiums of the near-term and longer-term positions.

Lastly, traders could also consider focusing on overseas markets to benefit from the arbitrage opportunity that arises from differences in market outlooks. For example, a trader in the U.S could focus on European equities and trade European ETFs to benefit from discrepancies in pricing between European and American markets due to different expectations from CPI releases.

As investors and traders look to make money while waiting for the October CPI, there is definitely a range of opportunities that can be capitalized on. While these strategies can be beneficial in certain market scenarios, one should always be prudent and cautious while deploying such set-ups.