The next Federal Open Market Committee (FOMC) meeting is in 19 days, 4 hours, 59 minutes and 14 seconds as I type.

Traders give Team Yellen a 98.5% probability that the Federal Reserve is going to raise rates in November and an 86.7% probability that they’ll raise rates in December.

Are you and your money ready?

I hope so.

There are huge profits at stake and now’s a perfect time to “trade the Fed” using a play that’s worked 100% of the time ahead of interest rates since 1990.

It all comes down to financials, and specifically, buying banks.

According to Kensho, a 3.5-year-old start-up that uses artificial intelligence to parse big data related to real-world events, buying financials two months before a rate hike has generated an average return of 10.74% every single time since 1990.

Granted, there have been only four December rate hikes over that time frame so you need to take their research with a grain of salt. But, don’t let that stop you when it comes to pursuing profits.

My research shows that year-end rate hikes are typically part of a much broader financial set up that includes everything from window dressing to performance-enhancing trades that portfolio managers use to position hundreds of millions (or even billions) of dollars for the following calendar year.

Key moves include shedding losers, deferring income, harvesting winners, and more – all of which should sound familiar considering we’ve talked about doing the same things in years past.

This time around, though, there’s a little more incentive.

You see, raising rates towards the end of this year is really a vote of confidence in upcoming economic conditions rather than just a rate hike like most investors think.

That’s what makes today’s trade so attractive, and potentially very profitable.

Remember, we’re talking about an opportunity that’s worked 100% of the time, according to Kensho’s research. The probability of success drops to only 62% for rate hikes at other times of the year, in case you’re wondering.

In other words, the calendar – not the Fed – is giving you an edge.

Here’s how I break the situation down.

A Fractured Fed That Doesn’t Know How Money Works

Team Yellen continues to struggle with the “control” it supposedly exerts.

The latest minutes from September show members openly debating whether or not low wages and price pressure are more of a long-term problem than a short-term market risk. That tells me they have no idea what it really is, let alone how to “fix it.” Not that they ever did, but that’s a story for another time.

The key is that they’re going to try anyway as long as the “medium-term economic outlook remains unchanged,” according to the official account of what transpired at the last meeting. That’s like trying to bake a cake when you don’t understand the ingredients – and about as futile.

Unbelievably, the minutes also show that the majority of Fed officials, including Ms. Yellen herself, still believe higher inflation is just around the corner, so they’re not ready to “recalibrate” the models used to make policy decisions.

Makes me want to beat my head against a wall!

The Fed does not understand how real money works, let alone why their models are broken – a point I’ve made frequently since the Global Financial Crisis began. I see this latest statement as proof positive that that’s still the case.

Inflation is not caused by tight labor markets and higher salaries like Team Yellen and her band of merry economic misfits think. Rather, it is caused by excess money in the system.

What most investors and many professional economists are missing is very simple.

The Fed can control liquidity, but it cannot control credit, which is constantly expanding. That’s what’s really holding inflationary pressure down in the monetary system.

People accuse the Fed of playing with imaginary money all the time, but in this instance, it’s the banking system that’s creating it out of thin air. Every loan application, every credit card offer, every derivative contract… those are all backed by nothing except the financial condition of the institution making the offer.

Yellen and her team cannot model what’s happening so they pretend the relationship between foreign exchange rates, loans, derivatives, bond markets and traders does not exist – and do their meddling anyway.

Traders, on the other hand, do understand the linkage I’ve just described – and very well.  They have to because they have trillions of dollars of real money on the line every day, not just broken academic models.

Now for the fun part.

You can make this trade any number of ways depending on your risk tolerance and trading objectives.

1. If you like to trade stocks, I think buying the best bank you can get your hands on makes sense as determined by their return on common equity or “ROCE” for short. To me, that’s a choice like Phoenix-based Western Alliance Bancorporation (NYSE: WAL), which has reported an average ROCE of 14.92% for the past four quarters.
2. If you’d rather spread your money around via an exchange-traded fund, a choice like iShares U.S. Financials ETF (NYSEArca: IYF) makes sense. Just understand that some of the upside will be limited by weaker banks with lower return on shareholder equity that are included in the fund.
3. If you’d like to play along more aggressively, consider a choice of call options or options related spreads on JPMorgan Chase & Co. (NYSE: JPM), which will likely grow loans and key business lines aggressively as Yellen’s Fed raises rates. I think the JPM January 19, 2018 $97.50 Call (JPM180119C00097500) is worth a closer look.

As always, remember that we’re talking about a “trading” opportunity here, not investing, as is usually the case.

So, you’re going to want to do two things if you want to follow along: 1) limit the amount of capital you put at risk to only the money you can afford to lose if things don’t go as expected, and 2) remember that past results never guarantee future results.

I suggest you implement a trailing stop to capture profits and minimize losses if the markets have other ideas.

Over the years I’ve suggested 25% below your purchase price as a good place to begin, but there’s nothing wrong with running a much tighter 5% trailing stop if you don’t have that kind of risk appetite.

In closing, I hope you’ve enjoyed today’s column.

We don’t get the chance to talk about the nuts and bolts of a trade like this as often as I’d like so it’s always fun when we do.

Especially when it comes to a fluid situation that’s got this kind of profit potential.

As I write this, you’ve got about 19 days before the FOMC meeting, but there’s another situation developing more quickly – and I want to make sure you have a heads up.

On October 16 – just three days from now – 71 blue-chip stocks are set for price eruptions. If you’re positioned now, you could make a killing, and the last time this rare event happened, you could’ve banked 1,868% in total winning gains in just 10 weeks.

That’s enough to turn $2,000 invested in each of these top plays into $30,135.