What's the Big Idea? A Fed Researcher Tells You How to Trade the Fed

The video discusses a Fed working paper by Michael Bauer, which examines market reactions to FOMC policy rate announcements. It highlights that market uncertainty decreases sharply on announcement days and provides a trading strategy to exploit this pattern. The strategy involves selling at-the-money puts and calls before FOMC meetings and closing the position shortly after, benefiting from declining implied volatility. The paper suggests this approach can yield significant returns, offering a new perspective on the phrase 'Don't fight the Fed.'

What are the potential returns from the trading strategy discussed in the paper?

What does the expression 'Don't fight the Fed' imply in the context of trading?