A Liberation Day Gameplan

Uncertainty Ahead Of Liberation Day

As Bloomberg columnist Conor Sen noted on X on Monday, we seem to be facing a big inflection point this week.

What Sen wrote is probably a lot more true of Liberation Day than the special elections. President Trump’s announcement of the details of our new tariff regime (Liberation Day) seems like a big deal. Either the details are worse than the market expects, in which case we see another leg down in stocks, or the reverse and we get a big relief rally.

When In Doubt, Bet On Both

Since we don’t know which is going to happen, why not bet on both outcomes? As long as your potential upside on each trade is greater than 100%, you can make money on the combination of both bets in either outcome. Below is an approach you can use. For illustration purposes, we'll use data as of Tuesday's close. You may want to check real-time data before placing your trades though. 

Pick A Couple Of Stocks To Bet On

Here, you'll want stocks that are sensitive to tariffs and also more volatile than the market. 

For example, you might pick Nvidia (NVDA) and Micron (MU), based on the tariff risk heatmap above. Both of these stocks are likely to rise more than the market on a relief rally. They're also likely to fall further than the market if we get another leg down. 

Check The Options Market For Both

To get a feel for how much each stock might move by the end of the week, you can check the at the money straddle for options expiring on Friday. For Nvida, the midpoint of the spread on the at-the-money calls was $2.55 as of Tuesday's close (screen captures via Fidelity). 

And the midpoint of the spread of the ATM puts was $2.35. 

So the options market was expecting a move of about $4.90 in either direction. Using the same approach, the options market was expecting about a $4 move in Micron in either direction. 

Setting Up Your Trades

After repeating the process above in real time, you can place options spreads within the anticipated range of each stock. So, for example, a bullish bet on Micron might look like this: buying the $90 strike puts expiring on April 4th and selling the $92 strike puts expiring the same day, for a net credit of $1.33. 

If the stock closes above $92 on Friday, you would make close to 200% on your trade, and if it closed below $90, you would lose 100%. 

Here's what a bearish bet on Nvidia might look like: Buying the $107 strike calls expiring on April 4th and selling the $105 strike calls expiring on the same day, for a net credit of $1.55. 

With that trade, if NVDA closes below $105 on Friday, you could make close to 300%. If it closes above $107, you could lose 100%. 

Making Money On Both Outcomes 

As a reminder, the numbers above are all as of Tuesday's close, so actual trades you place today might look a bit different. But for illustrative purposes, let's say you get fills on both of these trades. Let's consider what would happen in two scenarios. 

1. We have a big relief rally. Nvidia and Micron both spike, and you make about 200% on your Micron trade and lose 100% on your Nvidia trade. Overall, you would have made money. 
2. We get another leg down in the market. Nvidia and Micron both drop. You lose 100% on your Micron trade and make about 300% on your Nvidia. trade. Overall, you would have made money. 

The outcome where you could lose money on both trades would be one where the market just stays flat. 

Too Complicated? Just Want To Limit Your Risk? 

If so, you might consider just hedging, if you haven't done so already. You can download the Portfolio Armor optimal hedging app by aiming your iPhone camera at the QR code below (or by tapping here, if you're reading this on your phone). Our app can help you find the least expensive hedges given your risk tolerance and time frame.

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