Since the inauguration of Donald Trump, the world has changed noticeably and the US stock markets are also showing unusual behavior in 2025. In this blog post, you can find out what current trades are resulting from these market changes and what opportunities are now available for options traders in particular.
Focus on volatility
Last Friday, a remarkable meeting took place between Trump and Selenskyj, which resulted in a heated discussion on camera. While the political classification and possible consequences are left to others, we focus on the impact on volatility.
On Friday, the SPX index experienced a significant fluctuation, accompanied by strong movements in the associated VIX volatility index. VIX futures reacted accordingly and at times showed a pronounced Backwardation curve (blue line). In this state, short-term futures are quoted higher than longer-term futures, which often indicates increased market uncertainty.
However, the markets recovered towards the end of trading, with the VIX curve moving into a slight downtrend by Friday evening. Contango formation (pink line). Contango describes a market situation in which longer-term futures are more expensive than short-term futures, which typically indicates a more stable market sentiment.
We are curious to see whether the US stock markets can continue Friday's bullish movement on Monday. At the moment, however, it does not appear to be an ideal time to go long the VIX as a hedging instrument. The volatility index has already risen sharply and many political developments have probably already been factored into prices. A further rise in the VIX would probably only be expected if the current situation escalates further - otherwise, much of the panic seems to have already been priced in. On Friday, the well-known indicator for market sentiment was already below 20 - a value that indicates considerable uncertainty on the markets and is often associated with lows on the stock market.
Since Donald Trump's inauguration, the VIX has already risen four times from a level of around 15 to over 20 before falling back towards 15 each time. The current high level of market uncertainty, measured by the low Fear & Greed Index, currently speaks against the VIX staying above 25 for a long time.
However, our assessment would change if the VIX forward curve were to move into a sustained backwardation. It is important to note that we are not claiming that the VIX cannot continue to rise! However, we do not currently see an attractive risk/reward ratio in new long VIX trades. We are also not currently implementing short trades on volatility.
Current opportunities for the wheel strategy
The wheel strategy is an options trading strategy in which the trader alternates between selling cash-secured puts and covered calls to generate regular income. First you sell a put to buy shares at a favorable price. If you own the shares, you sell a call to profit from the premium. When the shares are sold, the process starts again. The aim is to generate income by repeatedly selling options and buying shares at favorable prices.
For Cash Secured Puts we see few opportunities at the moment. Although the VIX has risen, the market breadth is at a high valuation level, which makes bargains difficult to find at the moment.
After an impressive rally in 2024, Tesla's share price has fallen by over 40 % this year. Although we do not view the stock as a classic buy-and-hold candidate, it has shown considerable volatility. Given this volatility, selling put options seems like a tempting way to profit from price movements.
Please note that the potential tender investment is around USD 29,000. Alternatively, it is possible to work with bull put spreads. An at-the-money option with a term until June (109 days to maturity) generates a premium of over USD 3,500.
Donald Trump also caused a stir by abolishing the health insurance requirement for insurance companies. As a result, the insurance group UnitedHealth (UNH) fell by more than 30 % and is now trading at a key market level of around USD 450.
For a potential tender investment of around 45,000 US, however, the share is not a bargain overall. Those who find the position size too large could alternatively take a directional position in the share.
A number of defensive stocks that have recovered significantly from the price corrections in 2024 - in some cases even exaggeratedly - are currently suitable for trading covered calls. One example is the healthcare company Johnson & Johnson, which has returned to its September highs of around USD 165. This could represent a potential resistance zone that is well suited for selling covered call options.
We are No major supporters of covered calls and would only use them very selectively. The risk of a possible exercise is disproportionate to the often too low premium income generated by this strategy.
Conclusion
Current market conditions and geopolitical developments have had a significant impact on volatility on the financial markets, bringing both risks and opportunities for options traders. The VIX has recently risen significantly and stirred up the markets with its high volatility. While a continuation of the bullish movement in the US stock markets cannot be ruled out, the volatility index now appears to have reached a level at which new long positions in the VIX do not currently offer an attractive risk/reward ratio in our view. The market has already priced in many uncertainties and the VIX is likely to rise further, especially if the geopolitical situation escalates or other unforeseen events occur.
In terms of the wheel strategy, the current market breadth remains at high valuation levels and makes it difficult to find attractive opportunities to sell cash secured puts. While the high volatility of stocks such as Tesla makes selling put options potentially lucrative, the high requirements for a put investment and current market conditions limit this opportunity. For such trades, the use of bull put spreads could also be a viable alternative to limit risk and still benefit from price movements.
With regard to trading in Covered calls shows that defensive stocks such as Johnson & Johnson, which have recovered from the price corrections of 2024, are currently attractive for selling covered calls. This strategy offers the opportunity to earn additional premiums by profiting from the sideways or slightly rising performance of these stocks. However, the covered call strategy should be used with caution, as the potential premium income often does not justify the risk of a possible exercise.
In summary, the current market landscape presents both opportunities and challenges for options traders. Given the volatile markets and political uncertainties, investors should exercise extra caution and consider their trading strategies carefully. The use of options such as Bull Put Spreads or targeted covered calls can be a sensible way to profit from market movements in this volatile environment, while always keeping an eye on the risk.
