Market Trading Strategy After Trump Spikes Volatility Again

Trade negotiations involving tariffs are far from settled, and recent developments have sent a jolt through the financial markets. President Donald Trump recently issued a stark warning, threatening to hike tariffs on the European Union to as high as 50%, starting June 1, due to stalled discussions. This surprise announcement had an immediate effect—equity markets reacted swiftly, with European stock indices plunging about 2% in response.

‍

While many investors may be shaken by the sudden move, I see this sharp decline as a potential opportunity to generate income from the S&P 500 ETF (ticker: SPY). Despite the current volatility, I remain optimistic that the S&P 500 is still on track to revisit its previous record highs sometime in June.

‍

The mood shift coming from the White House felt almost theatrical—as if an ’80s rock anthem like Whitesnake’s “Here I Go Again” had inspired a burst of energy behind Trump’s tariff threats. Not only did he go after the EU, but he also set his sights on Apple, targeting CEO Tim Cook in a post. Trump warned that Apple would face a 25% tariff on iPhones unless it began manufacturing the devices domestically. It was a dramatic way to head into the Memorial Day weekend, and not exactly the calm markets had hoped for.

‍

Given the uncertainty, I’ve turned to technical analysis to guide my trading decisions. I’m using this recent dip in SPY as a strategic opportunity to implement a bullish trade via a put spread, which lets me take advantage of the pullback while limiting my downside risk. My broader view remains optimistic, as I believe this market weakness will likely be temporary and that buyers will return to take advantage of the dip.

‍

The S&P 500 has rebounded roughly 17.5% since hitting its low on April 7, 2025, a notable sign of underlying strength. One key technical level that I'm watching closely is the 200-day moving average, currently around $575. This long-term trend line often acts as a significant area of support, especially when volatility spikes. Indeed, the Cboe Volatility Index (VIX), which reflects market expectations for near-term volatility, surged to 22 following the tariff headlines, indicating increased investor nervousness.

‍

Here's how I structured the trade to reflect my bullish outlook while defining my risk exposure:

• Sell the $575 Put expiring on June 20, 2025, for $11.50
• Buy the $560 Put expiring on the same date for $7.25

‍

This spread nets a credit of $4.25 per share, or $425 per spread contract, since each contract covers 100 shares. The trade was executed while SPY was trading around $576, very close to the critical support level.

‍

This put spread reflects a limited-risk, limited-reward trade that benefits if SPY stays above $575 through the option expiration date. Should the index drop below this level, losses begin to accrue, though they are capped by the protective long put at $560. Essentially, this strategy profits from stabilization or a rebound in SPY, which I believe is likely once the initial market shock from Trump’s tariff threats subsides.

‍

The strategy also aligns with the idea that market participants may quickly shift their focus from political volatility to fundamental strengths—such as corporate earnings, macroeconomic indicators, and seasonal trends that tend to support equities into early summer.

‍

While Trump's comments may continue to create short-term noise, it’s important to distinguish between headline-driven volatility and the broader market trajectory. For long-term investors or tactical traders, this kind of environment can offer valuable entry points—provided trades are structured to manage risk effectively.

‍

In this case, selling a put spread allowed me to express a bullish stance while clearly limiting my downside exposure. And with SPY near key support and the VIX signaling elevated fear, the conditions appear ripe for a potential rebound.

‍

Markets may remain choppy as we await further clarity on trade negotiations, especially with Memorial Day weekend potentially muting trading volumes. Still, for now, I’m leaning on technicals and strategic positioning to take advantage of what I see as a market overreaction to Trump’s latest tariff threats.

‍