Options price Fed day about the way they did before anyone could trade the decision.
On September 16, the Fed raised rates for the first time in three years. A week before, Kalshi had the hike at about 55%, a coin flip, and SPX options priced that one day at 1.76 normal days, the most they’d charged for a Fed decision in a year. By the day before the meeting the hike was up to about 88%, and Kalshi’s market on the decision traded about 103 million $1 contracts over its life, the most of any Fed meeting it has listed. It’s the busiest this prediction market has ever been, and yet the options market was more nervous than usual, not less.
The next decision is this afternoon at 2:00 PM Eastern. As of Tuesday afternoon, Kalshi had the Fed holding at about 94% and a hike at about 6%, the second meeting in a row with a hike in play. So it seems like a good time to ask the question I’ve been asking about elections, on the event where prediction markets have the longest track record: has all that trading made Fed day any less uncertain?
I’m using the same measuring stick as my election piece. The gist is that we can use what SPX options charge for one day as a multiple of a normal day, quoted a week ahead, as the measure of uncertainty. 1.0x means options treat Fed day like any other day, 2.0x means they’re charging for two, and so on.
Why the Fed is the better test
Elections come every two years. The Fed meets eight times a year, and Kalshi has been listing those meetings in size since May 2025, at somewhere between 20 million and 100 million contracts a meeting. Daily SPX expirations let you price a Fed day on its own. That’s about 40 meetings of before and after, instead of one midterm and a lot of squinting.
From 2018 through 2021, Fed days mostly went as expected, and rates sat near zero for half of it. From 2022 through 2024, inflation made every meeting matter. In 2025 and 2026 things calmed down again. Kalshi’s Fed markets took off right as that calm returned, so a simple before-and-after gives Kalshi credit for the Fed getting boring.
The fair comparison is calm against calm: 2018–2021, with no Kalshi to speak of, against 2025–2026, with Kalshi at scale.
The inflation years stand out, at a median of 1.9 normal days. The two calm periods are much closer, 1.0x before Kalshi and 1.3x after. And even that gap is mostly about measurement. SPX didn’t have Tuesday expirations until April 2022, so earlier meetings have to be measured over a Monday-to-Wednesday window instead of a single day. Measure 2025–2026 the old way and it comes out at 0.9x, against 1.0x for 2018–2021. In other words, calm years price Fed day about the same, Kalshi or no Kalshi.
The timing doesn’t help either
If Kalshi were doing the calming, you’d expect the premium to fall when the trading picked up. It fell first. Options charged 2.0 normal days for the December 2024 meeting, then 1.4 in January 2025 and 1.3 in March. Kalshi traded about 2 million to 4 million contracts on each of those meetings. Its volume didn’t jump more than tenfold until May, by which point the premium had already settled down.
And then there’s September. Record volume on the decision, and options priced the day at 1.76x. When the Fed actually had something to do, a lot of prediction market activity didn’t make the options market any calmer about it.
Two ways it could have worked
As I laid out in the election scorecard, there are two ways a prediction market could take uncertainty out of a day like this. It can take over some of the hedging, or it can add information investors didn’t already have. Neither holds up here.
Start with hedging. As of Monday, open interest in the SPX options expiring today covered about $124 billion of the index, with about $164 million in premium. Kalshi’s entire October decision market pays out about $10.2 million in total, whatever the Fed does. It’s also thin. As of Tuesday afternoon, only about $54,000 of hike orders were posted between 6% and 11%. Protection isn’t moving from options to event contracts at that size, and a contract that pays $1 if the Fed hikes is the wrong shape for someone who’s worried about the S&P anyway.
Information is the more interesting case, and it fails for a different reason. Fed funds futures have priced rate decisions for decades, and Kalshi’s odds line up with theirs. Kalshi has even created a market on whether CME’s FedWatch odds, which are read off those futures, will move on Fed day. That tells you which number everyone treats as the reference. The decision itself is rarely the surprise anyway. The statement, the press conference, and the dot plot are, and that’s what moves stocks.
Options do charge somewhat more when the decision is a close call. Across the 15 meetings since December 2024, the premium ran from about 1.3x when Kalshi had the favorite near a lock to about 1.75x at a coin flip. But that floor is the point. Even when everyone knows what the Fed will do, options still charge about 1.3 normal days, and that premium can only be paying for what the Fed says.
Kalshi does list markets on some of what the Fed says. There’s a market on how many FOMC members will dissent today, and one on who. As of Tuesday, the dissent count had traded about 31,600 contracts, against about 19.1 million on the decision. Kalshi even tried a market on how much the S&P 500 would move on a Fed-related day, for the Jackson Hole speech in August, and it traded about 9,700 contracts. In other words, the part of Fed day that nobody knows in advance is the part almost nobody is trading.
Maybe I’m measuring at the wrong distance
There’s a good argument against all this, and I should admit it. By the week before a meeting, the decision is almost always settled. The Fed doesn’t like surprising markets, and it has usually told them what’s coming. A test that prices Fed day one week out is testing prediction markets right where they have the least left to add.
Trading the exact outcome isn’t new either. In 2006, the Chicago Board of Trade listed binary options that paid if the Fed set its target rate at a given level, which is essentially the contract Kalshi lists today. Banks and funds have long traded swaps tied to the rate between one specific meeting and the next. What’s new is that anyone with a brokerage app can do it.
If prediction markets add something, it’s further out: how many moves this year, and where rates end up. That’s where the outcome is genuinely uncertain, and a full ladder of contracts could describe it better than futures can. That isn’t where the money is, though. Kalshi’s market on where rates end 2027 has traded about 134,000 contracts over its life, and the one on how many hikes the Fed makes this year about 318,000. Each meeting’s decision draws 20 million to 100 million. The trading piles into the question that’s nearly answered.
A side note for options traders
Here’s something I didn’t go looking for. In both calm periods, Fed days moved less than ordinary days, not more.
Measured in variance, Fed days in 2018–2021 delivered about half a normal day, and 2025–2026 did the same. Options charged about a normal day or more for both. So in calm years, Fed-day options have been on the expensive side, before Kalshi and after.
Before anyone gets excited, there are two caveats. First, it’s 14 meetings in the latest period, which is a pattern and not a rule. Second, the inflation years went the other way, hard. Selling Fed-day premium on the strength of 2019 would have been a rough way to meet 2022.
What to watch this afternoon
As of October 21, SPX options priced today’s meeting at about 1.4 normal days, a move of about 0.9% in either direction against about 0.8% for a normal day nearby. That’s right in line with the rest of 2025 and 2026. Nothing about this meeting looks special to the options market, even with a hike in play for the second time running.
If the Fed holds, as Kalshi expects, the decision market will settle exactly as priced and tell us nothing new. Any move in stocks will come from the statement and the press conference, which is the part of the day the prediction markets barely touch. I’ll post a short follow-up once it’s over on how the day actually moved against what options charged.
Where I land
Kalshi hasn’t made Fed day less uncertain, and I don’t think that’s a knock on Kalshi. Fed funds futures have priced the decision for decades, and Kalshi’s odds tell you the same thing in a simpler package. That’s useful. It just isn’t new information, and options traders already had it.
Both calm stretches are short, though, and the real test is the next time the Fed’s path is genuinely in doubt. Here’s what would change my mind: liquid trading on where rates end up, not just on the next decision, with options taking their cue from those odds rather than from the futures. What would a prediction market have to price for you to trust it over the options market on Fed day?
