The Federal Reserve remains on hold! When will the rate cut window reopen?

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Weekly Options Strategy 0126 | Perfect storm on the horizon? Fed decision meets government shutdown crisis, precious metals surge violently, Tesla and Sandisk await earnings reports!

This article is from the 'Weekly Options Strategy' column, which provides fellow investors with a review of last week's market, the key highlights of the current week, and analyzes potential options trading opportunities. Welcome!click hereto join the learning journey. You will receive notifications when new updates are available in this column.

Dear fellow investors, happy Monday~

Due to Trump's tariff threats on Greenland, the US market once faced a triple sell-off in stocks, bonds, and currency last week. It then rebounded after Trump's 'TACO' concession and continued robust US economic data, with the three major indices ending only slightly lower. Gold and silver both surged past key psychological levels.

This week is filled with major events at both the macro and individual stock levels, making it overwhelming to keep up.

On the macro front, apart from this week’s Fed interest rate meeting, there remains the rising risk of a government shutdown and the strong emergence of a new 'dark horse' candidate for Fed Chair, Riddell. Regarding individual stocks, four of the seven major US giants will release earnings reports this week ( $Tesla (TSLA.US)$ 、 $Microsoft (MSFT.US)$ 、 $Meta Platforms (META.US)$ 、 $Apple (AAPL.US)$ ), with Tesla being the most closely watched. Additionally, a storage sector star that has skyrocketed more than tenfold in less than a year ( $SanDisk (SNDK.US)$ ) will also release its earnings report alongside industry giants Samsung and Hynix.

But don't worry! We'll continue to break down each event for you, analyze the impact pathways of key events, and uncover potential options trading strategies ~

The market broadly anticipates no rate cut this week, while the emergence of a new dark horse candidate for Fed Chair increases the risk of a government shutdown!

This week marks a Macro Super Week: How will the market react to signals from the Fed’s interest rate meeting? The prolonged uncertainty over the new Fed Chair nominee continues, adding to questions about whether the announcement will be made as scheduled and whether political infighting in the US will ultimately trigger a government shutdown. The outcomes of these significant events are expected to have a substantial impact on the markets.

Opportunity Analysis

Undoubtedly, the focal point will be the Fed’s interest rate decision (FOMC) announced in the early hours of Thursday, Beijing time.The market widely expects the Federal Funds Rate target range to remain unchanged at 3.50%-3.75%.

The key focus of this meeting is not the interest rate decision itself, but rather the forward guidance it conveys. This meeting is expected to set an important tone for the pace of rate cuts throughout 2026.Morgan Stanley expects the Fed to implement a 'dovish pause,' meaning that while rate cuts will be put on hold due to the recent stabilization in the labor market, the statement will retain a bias towards future easing.

Powell's remarks at the press conference will be central to the market’s interpretation of policy intent.His optimistic view on productivity prospects (possibly involving AI contributions) may further support the 'Goldilocks' narrative of 'high growth, low inflation.'

Powell’s term will end in May 2026, and the drama over who will become the next Fed chair continues with ongoing twists.Rick Rieder, Blackrock's Global Chief Investment Officer of Fixed Income, has suddenly emerged as the frontrunner. US Treasury Secretary Bessent hinted that the new Fed chair could be announced as early as this week.

Data Source: Polymarket

The intense competition between the two previously hottest candidates, Kevin Hassett and Kevin Warsh, has temporarily come to an end: Hassett’s close ties with Trump have raised strong concerns about a potential severe undermining of the Fed's independence; Warsh, despite supporting rate cuts in prior statements, has drawn skepticism from the Trump administration due to his previous role as a Fed governor, criticism of the Fed’s balance sheet expansion, and emphasis on long-term discipline within the policy framework.

Rieder, as a 'compromise choice,' may emerge as the better option in the final consideration.As a Wall Street veteran, his outsider status is seen as an advantage unbound by traditional Fed constraints. His public call to lower the benchmark rate from current levels to around 3% aligns him with the 'market-dovish' camp and closely matches the Trump administration’s desire for rate cuts.

Finally, the US federal government once again faces the urgent threat of a 'shutdown.'Due to two fatal shootings of ICE (US Immigration and Customs Enforcement) officers in Minnesota within a short period, political maneuvering in Congress has rapidly intensified.

Several key Democratic senators have shifted their positions as a result, causing a deadlock in the spending bill aimed at avoiding a government shutdown. The market now estimates a 75% probability of a government shutdown before January 31. If a shutdown occurs, it would not only lead to unpaid leave for many federal employees and disruptions in public services but could also create short-term impacts on consumer confidence and economic activity, exacerbating market volatility.

However, compared to the longest government shutdown in US history from October to November last year, the impact of this potential shutdown is expected to be relatively smaller.Congress has made some progress before the deadline, with six out of the total twelve appropriation bills already passed.

For economic data, if the government shuts down, the Bureau of Economic Analysis (BEA) and the Census Bureau, which are responsible for GDP data, will continue operations due to having received funding.However, the Bureau of Labor Statistics (BLS), responsible for releasing CPI and labor market data, will be unable to continue working after January 30 since its funding is included in the Department of Labor's bill, which has yet to pass.

Options strategy

Apart from the significant macro events mentioned above, there are still numerous high-profile earnings reports being released this week, which are expected to amplify market volatility. $SPDR S&P 500 ETF (SPY.US)$ 、 $Invesco QQQ Trust (QQQ.US)$ Major ETFs like SPY offer daily-expiry options, providing investors with more flexible strategy deployments.

The Greenland situation briefly increased market volatility last week, but Trump’s speech at the Davos Forum helped ease tensions, leading to a significant drop in volatility once again.Futubull’s options analysis tool shows that the current IV rank for SPY is 8%, while for QQQ it is 10%, both of which are relatively low levels.

(1) Betting on increased volatility

If the market direction is uncertain but volatility is expected to increase, one can adopt a Long Straddle or Long Strangle strategy by simultaneously buying Call and Put options. Profits can be made as long as the stock price deviates significantly from the strike price. When market consensus is mixed or expected volatility is high, these strategies can capture opportunities in both upward and downward directions, avoiding the risk of one-sided bets.

A Long Straddle typically involves buying two at-the-money options with a strike price equal to the current stock price, while a Long Strangle usually selects two out-of-the-money options. The smaller the difference between strike prices, the higher the opening cost, but the less the stock price needs to fluctuate to reach profitability.

(The illustration is for explanatory purposes only and does not constitute any investment advice)

(2) High-risk, high-reward plays on event day

This week's key macro event is the FOMC meeting resolution time (early Thursday morning), while the progress on the Federal Reserve chair selection and the potential US government shutdown remain highly uncertain. Risk-tolerant investors may also participate in same-day expiring options trading based on real-time developments when the events occur.

These options have relatively low premiums, offering higher potential leverage (and correspondingly higher risk). The daily expiration feature of index ETFs also makes deployment more convenient.

Gold breaks through the $5,000 mark. What should you do if you want to invest but are worried about a pullback?

The precious metals market welcomed another historic moment on Monday as spot gold surpassed the $5,000 mark, while spot silver simultaneously hit a record high, breaking through $106.The unusual rise in precious metals is no longer trading on a single geopolitical conflict but rather pricing the cracks in the entire Western credit system.

Opportunity Analysis

Is the bull market foundation for gold solid?The long-term bullish trend for gold is unfolding and has yet to end.。Key drivers include：

– A structural shift in central bank gold purchases:The central bank of Poland has adjusted its target from 'gold accounting for 30% of reserves' to 'an absolute tonnage of 700 tons' (currently at 550 tons). This may lead other central banks to follow suit, supporting continued purchases in a high-price environment.

– Ongoing geopolitical risks: The geopolitical risk index has risen since early December, and historical data shows that gold performs exceptionally well under these conditions.

– Expectations of Federal Reserve rate cuts and ETF inflows: The anticipated rate cuts in 2026 will continue to support the purchasing demand for gold ETFs.

– The U.S. dollar weakens,: A decline in the US Dollar Index (DXY) provides support for gold priced in US dollars.

What about silver prices?Its attribute as a precious metal has played a crucial role. Due to years of inventory shortages, investor demand for related ETF products has been strong, leading to the rapid depletion of limited stock.Pricing silver has become increasingly difficult, and against the backdrop of support from both precious metals and industrial metals, investment demand may continue to dominate prices, with low inventories potentially causing increased volatility.

Options analysis

It should be noted that recent grand narratives around precious metals, whether the evolution of geopolitical games or subtle restructuring of monetary systems, are inherently complex.Sharp short-term rallies are often accompanied by the rapid realization of expectations, followed by fluctuations and reversals, especially when breaking through important round-number levels, which can lead to heightened divergence between bulls and bears. Options provide more flexible strategy choices, useful for directional speculation, risk management, and arbitrage.

$SPDR Gold ETF (GLD.US)$ 、 $iShares Silver ETF (SLV.US)$ Precious metal ETFs can be traded as easily as stocks, with huge daily trading volumes and narrow bid-ask spreads, making them suitable instruments for deploying option strategies.

(1) Moderately bullish, control costs: Bull Call Spread

Simultaneously buy a call option with a lower strike price and sell a call option with the same expiration date but a higher strike price. The premium received from selling the option can partially offset the cost of buying the option.

(2) For those who already hold positions and want to profit from rising or sideways stock prices while also hedging against potential sharp declines: Long Collar Strategy

While holding the underlying stock, use 'buying Puts' to hedge against downside risks. Use 'selling Calls' income to offset part of the cost of buying Puts, thereby achieving lower-cost risk hedging.

Tesla: Fundamental desensitization and AI narrative support

After market close on January 28 EST, $Tesla (TSLA.US)$ Tesla will release its Q4 2025 earnings report. Institutional expectations forecast revenue of $24.752 billion for Q4 2025, a year-over-year decrease of 3.71%; EPS faces the risk of being halved, with expected earnings per share at $0.352, marking a year-over-year decline of 46.61%.It is the only company in Mag7 with a decline in profitability.

Opportunity Analysis

If judged under the traditional value investing framework, this undoubtedly represents a poor performance. However, for current Tesla traders,the financial statements from the past quarter are already in the 'rearview mirror.'Weakness in car sales has been fully priced in; the market is now more focused on two key details: first, the market feedback for the new entry-level Model 3; second, the bottom line pressure on the automotive business's gross margin due to rising raw material costs such as copper and aluminum, along with reduced pricing flexibility caused by intensified market competition, leading to consecutive declines in gross margin over recent quarters. A further drop in gross margin could intensify doubts about its cost control capabilities.

However, the importance of financial data is diminishing,as the focus of capital博弈has completely shifted to the commercialization potential of non-automotive businesses.The progress and commercial deployment pace of cutting-edge technologies like unsupervised FSD, Robotaxi, and Optimus robots form the core support of this narrative.

Key areas of focus include whether Tesla will update cumulative mileage data for its Austin-based robotaxi fleet during the earnings call, along with future city expansion plans. Recent positive news includes Lemonade Insurance endorsing FSD safety with a 'premium discount,' and signals at the Davos Forum indicating that FSD may receive approval to enter the Chinese market, which, if successful, could benefit the entire autonomous driving supply chain.

Options strategy

This quarter's earnings trading logic exhibits the rare mixed feature of 'weak fundamentals' alongside 'AI narrative reconstruction.' Technically, the stock price rebounded after hitting a low of approximately $419, with MACD still below the zero axis but green bars shortening, showing signs of stabilization and a potential short-term technical rebound, although overall trend strength remains weak, with the stock price in consolidation.

As of January 23, the PCR indicator (Put/Call Ratio) oscillated within the range of 0.53 to 0.75, with bullish sentiment slightly prevailing. Despite the absolute implied volatility (IV) remaining at a relatively high level of 50.02% and IV exceeding historical volatility (HV), indicating market expectations of significant movement on earnings day.But a more critical metric is the IV Percentile, which is only at 7%.

This means that compared to Tesla's volatility levels over the past year, the current options pricing is at a historically low percentile. Typically, before earnings reports, implied volatility (IV) is pushed to extreme levels, and the current low percentile suggests that options are relatively 'cheap' in terms of pricing.

(1) Aggressive volatility traders: Buy a Long Straddle or Long Strangle strategy

The options market implies an earnings day fluctuation of ±6%. If investors believe this earnings report will result in a 'binary outcome' — either a gross margin miss causing a sharp drop in stock price, or positive developments regarding FSD/Robotaxi triggering a significant rally surpassing the market-expected 6% — then this strategy can profit from substantial movement in either direction (up or down by more than 6-7%) without needing to predict the direction. However, the downside is the relatively high cost of opening the position.

(2) Conservative bullish investors: Bull Call Spread strategy

Historically, Tesla’s pre-earnings stock performance tends to show some negative correlation with its performance on earnings day. If investors believe the current situation reflects a 'worst-case scenario already priced in, awaiting a narrative reversal,' and they lean towards being bullish but want to control investment costs, they can use a Bull Call Spread strategy to seek moderate upside gains with limited risk, avoiding the 'volatility crush' associated with directly buying Calls (IV Crush).

Storage giants’ earnings unveiled on the same day: Can the supercycle continue?

This Thursday (January 29th), Samsung and $CSOP SK Hynix Daily (2x) Leveraged Product (07709.HK)$ 、 $SanDisk (SNDK.US)$and$Western Digital (WDC.US)$ other storage giants will release their earnings reports.Given the current frenzy in the memory market, the market is closely watching. Some even predict that SanDisk's results might once again show $Micron Technology (MU.US)$The splendor of the last quarter's earnings report.

Samsung Electronics and SK Hynix announced their results on the same day for the first time.Although neither company is listed on the US stock market, their analysis of the future memory market and capital expenditure plans will still have a profound impact on the US-listed memory sector.According to the latest earnings outlook, Samsung Electronics' revenue in the fourth quarter is expected to exceed 90 trillion won, with operating profit surging 208% year-over-year. It is expected to become the first Korean company with quarterly operating profit exceeding 20 trillion won. Despite limited benefit from rising traditional DRAM prices due to its high HBM business proportion, SK Hynix's quarterly operating profit is still projected to reach at least 18 trillion won.

Another highlight of this earnings release lies in the two companies' outlook on peak performance by 2026 and their capital expenditure plans. The market generally expects Samsung to significantly increase investment in the memory sector to boost HBM production and advance US capacity building, while SK Hynix’s capital expenditure is expected to exceed 30 trillion won by 2026.

As for SanDisk, following a round of sharp gains, market sentiment has shown signs of 'fear of heights and divergence.' Bulls hope to confirm continued improvement in fundamentals, while bears are waiting for signals of weak guidance or a cyclical turning point.

The focus of this earnings report is not simply whether the data ‘exceeds expectations,’ but whether management can confirm a structural shift: Can NAND upgrade from a mere 'storage medium' to a key component in the AI inference phase? Additionally, the market will closely monitor its third-quarter earnings guidance and whether management’s positive attitude towards long-term trends continues.

The company’s guidance for the second quarter of fiscal year 2026 projects revenue of $2.6 billion, a 39% year-over-year increase, with non-GAAP diluted EPS between $3.0 and $3.4. In terms of valuation, BofA forecasts its fiscal year 2026 earnings per share at approximately $16 and fiscal year 2027 at about $27.Based on the current share price, the corresponding price-to-earnings ratios are approximately 31 times (for fiscal year 2026) and 16 times (for fiscal year 2027).

Opportunity Analysis

In the AI inference phase, the importance of NAND has significantly increased because retrieving data from trained models requires extremely fast read speeds and minimal latency. JP Morgan forecasts that industry demand will accelerate over the next three years, with a compound annual growth rate (CAGR) of 49% by 2028.

On the supply side, apart from Yangtze Memory Technologies, there are hardly any significant new NAND capacity expansion plans. Even with increased capital expenditure, it is expected to remain below the peak levels of 2021–2022. Manufacturers are currently focused on technology migration rather than pure capacity expansion. Capital intensity over the next three years is projected to stabilize at 15%-20%, far below historical averages. Amid rising demand and tight supply, prices are still expected to be supported.

Bernstein predicts that the NAND upcycle may continue until around 2027, peaking and gradually easing thereafter, with gross margins potentially reaching about 50% by 2026 and possibly even around 76% in 2027.

Options strategy

Sandisk's implied volatility (IV) is currently as high as 109.43%, at the 85th percentile historically, indicating that option pricing reflects higher expectations for short-term volatility.The market is pricing in a ±18% sharp move after earnings release – an unusually wide range.

Under open interest, the Put/Call Ratio stands at 1.18, showing a noticeable increase since January, reflecting a slightly bearish sentiment. Observing the open interest across the four nearest expiration dates, most put options are concentrated in the $350–$400 range, while call options are clustered around $450 and $500 strikes.

(1) Betting against volatility

Given the current high IV characteristics, if investors believe that the stock price will enter a high-range consolidation phase,they may consider adopting a short-volatility strategy while setting protections for extreme risks,such as implementing a 'short iron condor spread strategy.'

This strategy is constructed by simultaneously selling out-of-the-money put spreads and out-of-the-money call spreads, with income derived from the net premium of the two sold spreads. Its maximum risk is limited, determined by the difference between the spread width and the net premium.

If the stock price moves within a range as expected, the sold options will expire worthless, allowing investors to achieve maximum profit (the full premium). If there is a significant one-sided movement in the stock price, although the sold spreads may incur losses, the purchased 'insurance' options will generate profits, offsetting some of the losses.

(The illustration is for explanatory purposes only and does not constitute specific investment advice)

(2) For existing positions or those looking to build positions at lower levels

Consider using covered calls to lock in profits at higher levels or selling out-of-the-money cash-secured puts to enter at lower levels.

Covered callinvolves selling Calls near the high/resistance level to collect premiums. Even if the stock price falls back or moves sideways, the premium provides a cushion of returns; if the stock price surges beyond the strike price, the underlying shares must be sold at that price, equivalent to forced profit-taking at a high level.

Cash-Secured PutEarn premiums by selling out-of-the-money puts; if the stock price remains above the strike price, the options will expire worthless, and investors retain the premium as profit; if the stock price falls below the strike price, the options will be exercised, obligating investors to buy the stock at the strike price.

Brian Wong Huang Zi Zheng

Futu Investment Strategy Expert

CE: BBH085

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Disclaimer

This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee of any securities, financial products, or tools. The risk of loss in buying and selling options can be substantial. In some cases, your losses may exceed the initial margin amount deposited. Even if you set contingent orders, such as 'stop-loss' or 'limit' orders, these may not necessarily prevent losses. Market conditions may make these orders unexecutable. You might be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will still be responsible for any account deficit arising from this. Therefore, before trading, you should study and understand options and carefully consider whether such trading suits you based on your financial situation and investment objectives. If you trade options, you should be familiar with the procedures upon exercising options and at expiration, as well as your rights and obligations when exercising options and at expiration.

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