Next week is going to be a doozy!

The Federal Reserve is meeting on the 13th and 14th, and the consumer price index data (which measures inflation) is going to be released on the 13th.

In short… WOW!

This is a short-term trader’s dream!

Recent history shows that the market has moved between 3% and 5% in the days immediately after a Fed meeting or a CPI release. Both occurring at the same time is almost unprecedented… and is sure to confuse the heck out of everyone.

But the truth is…

Confusion equals volatility.

So, how are you going to play this? Are you going to sit it out? Or are you ready to engage in a possible monster move up or down?

The betting will be that inflation moves lower and the Fed raises rates by only 50 basis points.

If both hit – and Fed Chair Jay Powell doesn’t get mad during the press conference again – the markets could go sharply higher. If the numbers on inflation miss and Powell has another hissy fit on stage, we could easily fall by 5%.

YOUR ACTION PLAN

On Monday, December 12, you can take a strangle position on the SPDR S&P 500 ETF (NYSE: SPY) options or the Invesco QQQ Trust (Nasdaq: QQQ) options expiring Friday, December 16. My choice is the QQQ, as tech is more interest rate sensitive.

Choose your strike prices based on the move you expect. For the QQQ, choose strike prices $5 above and below the current price. The strangle could pay off nicely if the move is big enough. That is the key.

In order for a strangle to work, the move has to be big. A 5% move would take the QQQ (if it’s at $300 to start) to $315 or $285. These moves should be big enough to cover your strangle price.

If you want to make a one-way bet, either of the strikes you use for your strangle will work. The one-way bet is going to be cheaper, but if the move does not go your way, you lose it all.

So, what’s the risk with the strangle? The risk is that the market has already priced in the move and yawns. History tells us that will NOT end up happening… but you need to position size just in case.

The VIX, or volatility index, is predicting a 1.2% daily move in the S&P. The Nasdaq should see even bigger moves, as it is more volatile and interest rate sensitive, so you already have a nice base to work from.

Because these moves can happen very quickly, you may want to set a preestablished exit price. And since the CPI release is on the 13th and the Fed decision and press conference are on the 14th, you could get multiple shots at exits and/or reloading the position.

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