To The Moon

On the 7th local time, US President Trump sent a letter to 14 countries including Japan, South Korea and South Africa threatening to levy taxes. Subsequently, he signed an executive order to extend the suspension period of "reciprocal tariffs" to August 1st.

This move has made Trump's uncertain tariff policy once again become the biggest focus in the financial market.Investors are worried that tariffs will push up prices and slow economic growth, while uncertainty over ultimate policy could create an even bigger drag as it causes companies to delay decisions.

Valentin Marinov, head of G10 currency foreign exchange research and strategy at Credit Agricole, said, "Before the deadline of the trade agreement on July 9, uncertainty has increased, and investors have begun to gradually factor in the risk that President Trump may aggravate global trade again. Tensions, thus dealing a blow to the global economic outlook."

Will Compernolle, macro strategist at FHN Financial in Chicago, pointed out, "It is this uncertainty that prevents companies from laying off employees, hiring new employees, and making investment decisions. Therefore, I think the longer this uncertainty lasts, The more likely the resulting paralysis will lead to substantial economic weakness."

After Trump announced "Liberation Day" tariffs on April 2, the United States$S&P 500ETF (SPY) $The three kills in the stock, bond and foreign exchange markets once triggered concerns about the large-scale withdrawal of foreign investors from U.S. assets.

The Role of Derivatives Strategies in Hedging

In the context of the market plunge, what investors need most is suitable hedging and shorting means, and derivatives, especially options strategies, are important tools to achieve this goal. Here are six commonly used hedging methods to help investors manage risks and profit layout in different situations.

1. Buy a put option (Protective Put)

Buying put options is a direct bearish strategy, which has two main functions:

• Short selling effect:When traders expect asset prices to fall, they can simply buy put options to capture downside gains.

• Risk Management:For investors who hold stocks or other assets, buying a put option as a protective put option can provide insurance against asset declines and limit potential losses.

This strategy is not just suitable for stocks, but can also be used in multiple markets such as currencies, commodities, and indices, helping investors get protected in the event of price declines.

2. Covered Call Strategy

For investors who already own stocks, selling a call option (Covered Call) is a strategy that can both gain additional gains and act as a hedge. When the market is volatile, this strategy can partially offset the losses caused by the decline of asset prices. Especially when investors expect that the stock will not skyrocket or plummet in the near future, a call option in the ask price or not in the price can provide a hedging effect similar to a call option.

3. Bear Spread Strategy

The bear spread strategy is designed for the scenario in which the price of the underlying asset is expected to fall. It builds a short position by combining call or put options while controlling risk.

• Bear Call Spread Bear Call Spread:Buying a call at a higher strike price and selling a call at the same expiration date at a lower strike price.

• Bear Put Spread Bear Put Spread:Buying a put option at a specific strike price and simultaneously selling the put option at a lower strike price.

The advantage of this strategy is that it can reduce the unlimited risk of directly shorting stocks, while controlling costs and capturing some gains when the market goes down.

4. Inverse ratio spread

The disadvantage of the traditional spread method is that when going long or short, although the risk is limited, the upward and downward profits are also limited. Using the ratio reverse spread can solve this problem, achieving unlimited profits and limited risks.

In the ratio spread strategy, a trader buys a call or put option on an at-the-money ATM or an out-of-the-money OTM, and then sells at least two or more identical OTM options. If a trader is bearish, they will use a put ratio spread.

The bearish reverse ratio spread is also called the defensive bear market spread strategy. In a combination with a ratio of 2: 1, investors will sell one put option with a higher strike price and buy two put options with the same expiration date at the same time. If the stock price falls sharply, this strategy can accelerate investors' profits, and if the stock price rises rapidly, it can also bring certain profits. Therefore, this strategy is suitable for investors who have pessimistic expectations for market trends.

5. Collar Strategy

The collar strategy combines the dual advantages of buying a protective put and selling a Covered Call. While holding the stock, protect against downside risk by buying out-of-the-money puts and selling out-of-the-money calls to partially offset the cost of the put. This strategy can effectively lock in the stock return range, which not only limits the downside risk, but also retains the upside space to a certain extent.

When the put cost is completely covered by the selling call, it is called a zero-cost collar strategy.

6. Volatility$S&P 500 Volatility Index (VIX) $And leveraged ETF strategies

Investors often get the latest readings from the volatility index VIX in volatile markets to feel the market sentiment. The VIX is also often referred to as the "panic index" because it usually rises sharply when the broader market falls sharply. Investors can also trade futures and options on the VIX to hedge.

If investors think that the market will fall further sharply next, they can hedge by buying VIX call options. On the contrary, if investors think that the market will stabilize and rebound in the future, investors can also make profits by shorting VIX with options.

Investors can also take advantage of leveraged ETFs$Double Long Volatility Index Futures ETF (UVIX) $Related options to enhance the effect of your own hedging

Strategy Selection and Risk Management

Taken together, when investors expect the marketWill continue to plummetWhen buying put options, inverse ratio spreads, bear market spreads, and buying VIX call options are ideal hedging tools. Inverse ratio spreads have the characteristics of limited risk but unlimited profit potential, bear market spreads can achieve short layout while controlling costs, and buying VIX call options can provide the best hedging effect in specific situations.

If investors think that the market will onlySlight drop or tend to stabilize, you can consider adopting the sell call option strategy or the collar strategy. These two strategies respectively retain a large profit margin when the stock goes up and take into account upside opportunities while locking in downside risks.

When the market fluctuates violently, rational emotional management and strict risk control are particularly important. Investors should not only pay attention to changes in market fundamentals and technology, but also protect assets through scientific derivatives strategies and capture potential investment opportunities in the plunge.

Against the background of plummeting U.S. stocks and rising global economic uncertainty, a reasonable hedging derivatives strategy is particularly critical. Whether buying put options directly or using combination strategies such as collar strategy and inverse ratio spread, investors need to formulate corresponding trading plans based on their own risk appetite and market judgment. Through scientific strategy combination and strict risk management, we can find the opportunity of stable income in the volatile market and effectively resist the risks brought by the unfavorable market environment.