Tariffs are withdrawn and S&P stabilizes! Which strategies can be used to go long in the market?

On Wednesday, a U.S. federal court (U.S. International Trade Court) prevented U.S. President Trump's "Liberation Day" tariff from taking effect, ruling that Trump invoked the International Emergency Economic Powers Act to impose comprehensive tariffs on the grounds of trade deficit, which was ultra vires. It is worth noting that after the federal court blocked the tariff increase, the Trump administration filed a notice of appeal.

Stimulated by this news, the three major U.S. stock futures indexes rose in a straight line. The main consecutive Nasdaq 100 index (2506) rose 1.72%, and the S&P 500 index futures and Dow Jones index futures rose more than 1%.

Long options strategies for the current market

The following options strategies can be used to go long on the index given the market stabilizing and potentially rebounding:

1. Bull Call Spread-Low Cost Long Index

   1. STRATEGY: Buy call options with lower strike prices and sell call options with higher strike prices at the same time to reduce costs.

   2. advantage: Lower cost than buying call options directly, less time value loss, and limited downside risk.

   3. example: If the current price of SPY is $562, investors can execute the following strategies:

      • Buy Call option with strike price of SPY 565 (expiration time 1-2 months)

      • Sell Call Option at SPY 585 Strike Price

      • If SPY rises to $585, investors can get the most benefit at a lower cost than buying a call option alone.

2. Cash-Secured Put-Sell "insurance" when the market panics

   1. Strategy Overview: Sell puts when the market panics to earn premium and buy the index at a lower price if necessary.

   2. advantage: If the index rebounds, you can directly earn premium; If it continues to fall, you can buy the index at a lower price.

   3. example: If the current price of SPY is $562, investors can:

      • Sell the Put option at the strike price of SPY 550 and receive a premium of about $5.

      • If the SPY is still higher than $550 when it expires, the investor retains the premium gains; If it falls below $550, buy SPY at a discount.

3. Risk Reversal Strategy (Risk Reversal)-Go long at zero cost

   1. STRATEGY: Sell Put options (Put), use the obtained premium to buy Call options (Call), and achieve zero-cost or low-cost opening positions.

   2. advantage: Reduce the cost of going long, and possibly even get net income, which is more cost-effective than buying call options alone.

   3. example: If the current price of SPY is $562, investors can:

      • Sell the Put option at the strike price of SPY 550 and collect about $5 premium.

      • Buy the Call option with the strike price of SPY 575, which costs about $5.

      • If SPY rises above $575, investors enjoy the benefits of the increase, and the cost of building a position is almost zero.

4. Buying a Long Strangle-Taking advantage of market volatility

   1. Strategy Overview: Buy put options with low strike price and call options with high strike price at the same time to profit from violent market fluctuations.

   2. advantage: You can make profits whether the index rises or falls sharply, and it is suitable for highly volatile markets.

   3. example: If the current price of SPY is $562, investors can:

      • Buy the Put option at SPY 550 strike price.

      • Buy the Call option at the strike price of SPY 575.

      • Investors can profit if SPY rises sharply above $575 or plummets below $550. The only risk is that the index remains within the range, causing the option to depreciate.

conclusion

At present, the market is already showing signs of stabilization, while data from the options market shows that investors are unhedging, indicating that the market's fears of further sharp declines have waned.

For investors who are bullish on the index, they can use bull spreads, sell puts, risk reversal strategies, or wide straddle strategies to capture market rebound opportunities. These strategies can effectively manage risk while profiting from the volatility of the market.