Here are the ETF trades Goldman is watching into the Fed decision

Published Wed, Sep 22 202111:16 AM EDTUpdated Wed, Sep 22 202112:51 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

A few key exchange-traded funds could see significant swings based on the Federal Reserve's new statement and projections due out Wednesday afternoon , according to Goldman Sachs. The firm's derivatives research team put together a list of funds to watch on Wednesday after what could prove to be a pivotal meeting for U.S. monetary policy. "Goldman Sachs economists see today's meeting as likely to provide 'advance notice' of tapering, with the language of the statement expected to be similar to that used in July 2017, to indicate the start of balance sheet normalization at the next meeting," the note said. A major change to the Fed's policy statement could create volatility in the markets. Goldman identified four ETFs — the Financial Select Sector SPDR Fund ( XLF ), the iShares 20+ Year Treasury Bond ETF ( TLT ), the iShares iBoxx High Yield Corporate Bond ETF ( HYG ), and the iShares MSCI Emerging Markets ETF ( EEM ) — as funds to watch on Wednesday. Those ETFs include bonds or stocks that are highly sensitive to interest rates, meaning that a potential surprise move by the Fed would likely cause a big change in their price. Goldman's note said the Financial Select Sector SPDR Fund typically falls after the Fed statement is released, while the iShares 20+ Year Treasury Bond ETF usually climbs. Prior to the pandemic, the iShares MSCI Emerging Markets and iShares iBoxx High Yield Corporate Bond ETFs tended to rise following the central bank's releases, but a trend has been hard to find for those two funds since March 2020. In July 2017, when the central bank signaled that it was moving toward a tighter policy, the XLF moved lower after the statement while the three other funds rose. One way for investors to position for a bout of volatility is with a straddle. The options strategy consists of buying put and call options at the same set strike price close to where a stock or ETF is already trading. The trade can make money if the underlying asset moves more than expected. "Since the COVID-19 pandemic, equity markets have often realized higher-then-normal volatility on FOMC days," the note said. Goldman Sachs said the implied volatility for the XLF in particular looked low, making it a potential straddle candidate. About an hour before the Fed's 2 p.m. ET statement, XLF was up 1.9%, EEM was 1.5% higher and TLT and HYG were up fractionally. -CNBC's Michael Bloom contributed to this report.

Federal Reserve Chairman Jerome Powell adjusts his tie as he arrives to testify before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, July 15, 2021.

Kevin Lamarque | Reuters

A few key exchange-traded funds could see significant swings based on the Federal Reserve's new statement and projections due out Wednesday afternoon, according to Goldman Sachs.