The Overlooked Macro Event: Why CPI is Crucial for Zero-Week (0WTE) Traders

By Matt Amberson, Founder & Principal at ORATS

Tomorrow’s Consumer Price Index (CPI) announcement is a significant event that traders, particularly those who trade zero-weeks-to-expiration (0WTE), should factor into their trading. With the CPI release scheduled for tomorrow morning at 8 a.m. ET, the options market is signaling a potential 0.9% move—a movement traders cannot afford to ignore.

Zero-days-to-expiration (0DTE) traders do not feel the effects of pre-market announcements that the 0WTE do. However, these traders still should know about these announcements even though when trading starts on the current day, most of the move has already happened. There is still a period in the opening period when the market has not fully digested the ramifications of the report.

This article explores why the CPI is important, how the options market is preparing for it, and why understanding this macroeconomic event is crucial for 0WTE traders.

Options market data for SPY, the SPDR S&P 500 ETF Trust, shows a notable increase in implied volatility (IV) for the October 10th, 2024 expiration. The chart illustrates that implied volatility for this expiration is significantly elevated compared to later months, indicating heightened uncertainty in the market or expectations of substantial movement following the CPI release.

The chart highlights several key insights:

• Elevated Implied Volatility: The implied volatility for the October 10th expiration is considerably higher, signaling that traders expect significant movement in the underlying ETF.

• Short-Term Market Expectation: The spike in IV suggests that traders anticipate a notable move, estimated at around 0.9%, immediately after the CPI release.

For 0WTE traders whose positions expire at the end of the trading week, macroeconomic events like the CPI release are crucial. Such reports can create sudden and sharp movements in underlying assets, which can lead to either profitable opportunities or substantial losses depending on positioning. The CPI, as a key indicator of inflation, directly influences investor sentiment and can trigger rapid market adjustments.

Ignoring macroeconomic events like the CPI can mean missed opportunities or exposure to unexpected risks for 0DTE traders. With the current data showing an anticipated 0.9% move, traders need to be prepared and strategically position themselves accordingly.

For 0DTE traders in the opening part of the day, the market can swing more violently than expected as participants assess the effects of the earlier macro announcement. This can present opportunities with residually high IV, but also risks of large market moves. Regardless, the trader needs to be aware that the report happened, the prior implied move for the event (here a significant 0.9%), and the IV where the market should settle once the information has been digested.

The chart provides crucial insights into how traders are positioning themselves ahead of the CPI release. The visual annotations emphasize:

• High Implied Volatility Range: The shaded area in the chart clearly indicates the difference between short-term IV and implied volatility for later expirations. The focus on the immediate expiration suggests traders are concentrating their bets on a significant market reaction following the CPI release. The longer-term IVs are the spot where the short-term IVs should settle.

• Market Anticipation: The increased IV range and higher open interest for the near-term expiration indicate that traders are actively positioning themselves for an anticipated spike in volatility, likely caused by the CPI results.

Tomorrow's CPI announcement is a pivotal macroeconomic event that options traders—especially 0WTE and traders—cannot afford to ignore. The options market has already priced in a significant move, with the implied volatility for the October 10th expiration pointing to a 0.9% market shift. Traders should consider employing strategies such as straddles, iron condor adjustments, or vertical spreads to take advantage of the heightened volatility, based on their risk tolerance and market outlook.

Understanding and preparing for macroeconomic events like the CPI allows traders to make informed decisions and capitalize on opportunities. By aligning their strategies with these macro catalysts, traders can better navigate market dynamics and position themselves for success in an ever-evolving trading landscape.

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Matt started ORATS.com in 2001 and has served thousands of clients in his two decades at the helm. Before ORATS, Matt worked as a market maker on the floor of the CBOE.