Fear and uncertainty seem to be the driving forces in these markets leaving many investors unsure of how to move forward. As I write this, we’re looking at a hefty amount of incoming information that could cause even more uncertainty with April 2’s tariff announcements, state elections that could be an early referendum on Trump’s approval ahead of midterms, and numerous reports of increased inflation expectations and increased probability of a recession. Market volatility is elevated, driven no doubt by investor emotion resulting from uncertainty. We must remind ourselves that emotional investing is not a strategy that we should let anywhere near our decision making processes when it comes to portfolio management. Our job is to not stress out and waste energy trying to predict the future based on what we think ‘should happen’ or what we think we know about the political landscape, but to thoroughly assess the current environment in front of us and expend energy on what we know and can control. We do know the market rotated into defensive areas including healthcare, staples, utilities, gold and gold mining stocks, and out of the growth areas, specifically the AI-related names. Could the growth trade move lower? Absolutely. Or has the value trade topped out and the growth trade secured a low on March 31st, the last day of Q1, with that high volume reversal day? Very possibly. I can’t know for sure. Personally, I place better odds that we secured a short-to-medium term low in the growth trade on March 31. I have a shopping list of stocks ready to go. If I’m wrong, that’s where asymmetric reward-to-risk option hedges can play a valuable role in hedging against what we can’t know. In our shorter-term model at Inside Edge Capital called Active Opps we deploy these kinds of shorter-term “fast money” trades to hedge against our longer-term holdings. Chip stocks look shaky The weekly chart of the VanEck Semiconductor ETF (SMH) shows a triple bottom support level right around $200 that first formed almost one year ago in April ’24. In that time you’ll notice the SMH/S & P 500 ratio moving lower, showing the underperformance of the semi group to the broader stock market. If the growth trade has yet to secure a bottom, there is little doubt that the $200 level in SMH will break support and we should be able to move down into the yellow highlighted zone of $191-$177 support calculated from wave and ratio analysis. To take advantage of this possible move lower and to hedge our longer-term holdings, I’m looking to buy a put spread in the May monthly expiration. I am looking to buy the $190 put trading for $3.25 and then sell the $180 put for a credit of $1.80. The total cost of the transaction is $1.45 or $145.00 of total risk per spread. The max possible reward is the $10.00 spread – $1.45 cost, or $8.55. Put simply, the total maximum risk is $145 per spread to potentially make a maximum reward of $855 should SMH close at $180 on May 16th. With that kind of asymmetric reward-to-risk ratio I can maintain our long positions and reduce the uncertainty that is so plentiful in this emotional and volatile market. -Todd Gordon, Founder of Inside Edge Capital, LLC Get Your Ticket to Pro LIVE Join us at the New York Stock Exchange! Uncertain markets? Gain an edge with CNBC Pro LIVE , an exclusive, inaugural event at the historic New York Stock Exchange. In today’s dynamic financial landscape, access to expert insights is paramount. As a CNBC Pro subscriber, we invite you to join us for our first exclusive, in-person CNBC Pro LIVE event at the iconic NYSE on Thursday, June 12. Join interactive Pro clinics led by our Pros Carter Worth, Dan Niles, and Dan Ives, with a special edition of Pro Talks with Tom Lee. You’ll also get the opportunity to network with CNBC experts, talent and other Pro subscribers during an exciting cocktail hour on the legendary trading floor. Tickets are limited! DISCLOSURES: (Gordon owns the SMH put spread mentioned in his wealth management company Inside Edge Capital, LLC. Charts shown are MotiveWave.) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
