Second Week of September: FNGU Rebound, Fed's Dilemma, and TMF Call Spread Update

What a difference a week makes! After the rough start with FNGU, which plummeted by 12% last week, I’m glad to report a remarkable rebound. My position, which was down in the red, has surged back into positive territory with an 8.5% gain. Below are the screenshots of my holdings showing the 20 shares of FNGU I purchased at $363, now climbing to $394. It’s clear the volatility can cut both ways, and this week, I’m finally on the upside.

What caused this bounce? The sharp rise in tech stocks gave FNGU the boost it needed. Despite the initial dip, the tech sector’s resilience pushed my portfolio back into profit. While I'm relieved, the question remains: Is this rally sustainable, or just a temporary bump before more turbulence?

Fed’s Rate Cut Dilemma: One or Two Notches?
Now, let’s talk about the Federal Reserve. Just last week, market consensus was firmly expecting a 25 basis point rate cut for September. However, things took a dramatic turn after Nick Timiraos, often referred to as the “Fed whisperer,” suggested that the Fed might consider a 50 basis point cut (two notches). This would be a much more aggressive move than the market was prepared for, and the Fed seems to be communicating with the market to avoid panic, hinting that the cut is aimed at ensuring a soft landing.

But is this really about a soft landing, or is the Fed reacting to much worse underlying economic data, particularly in the labor market? The recent downward revisions to job numbers are alarming, casting doubt on whether the economy is as resilient as it seems. Could this larger-than-expected cut be damage control to avoid a hard landing?

TMF Call Spread Update: Closing the Short Leg
As for my TMF diagonal call spread, it was a mixed bag this week. On September 13, I had to close out the short September $60 calls, which cost me $2,600, realizing a loss of $1,430. I initially expected TMF to hover between $59.50 and $61.00, but the ETF spiked beyond $62.50, forcing me to close the short calls at a loss.

That said, the remaining long calls—February 2025 $50—are still in the game, and the overall position is still profitable when considering the open leg. I plan to hold onto the long calls until after the FOMC meeting on September 18. If the Fed does indeed cut rates, I expect another spike in TMF, giving me the chance to lock in a more favorable exit.

How do I plan to recover the $1,430 loss? Once TMF rises post-FOMC, I’ll exit the long calls for a profit, and later, I may set up another diagonal call spread depending on how the market reacts. The goal is to capitalize on further Treasury price moves as the Fed continues its rate cut cycle. If the cuts proceed in smaller increments of 25 bps, I believe I can recover the loss and come out ahead.

Managing Risk: Stop-Loss Strategy
With the volatility in the market, especially surrounding the September FOMC meeting, one thing I’ve learned is the importance of having stop-losses in place. With FNGU and other positions, I’ve set tight stop-losses to protect profits and avoid major losses in case of unexpected sell-offs. This becomes even more crucial with speculation around the Fed’s possible 50 bps rate cut, which the market could interpret either positively or negatively.

I highly recommend setting stop-losses to secure your gains and limit potential downside, especially during such uncertain times. Whether the market reacts with a rally or a sudden drop, stop-losses ensure that you’re not caught off guard.

Election and Market Sentiment
We’re also approaching the U.S. presidential election in November, and the Fed’s actions could have major political and market implications. A large 50 bps cut just before the election could be seen as a signal of deeper economic troubles, potentially leading to a market sell-off. If this scenario plays out, it could ripple into the political landscape, potentially benefiting candidates like Trump if the economy takes a hit.

Given all these variables, I’m holding onto my FNGU position for now but keeping a close eye on how the market reacts to the Fed’s upcoming decision. If the Fed does cut 50 bps, it might be a good time to lock in gains and reduce risk exposure.

Final Thoughts
This week has been about managing volatility and risk while keeping an eye on the FOMC meeting. I’m holding onto the TMF long calls for now, with a plan to exit post-FOMC, and I’m ensuring my stop-losses are in place to protect against any sharp market moves. As always, stay nimble and manage your risk. Follow me for continued updates as we head into a crucial period for both the markets and the election.