Two weeks ago, we outlined a hedging strategy for the equity markets, highlighting the risks of a consumer spending slowdown and the S & P 500’s vulnerability at the 5,700-5775 resistance level , with a downside target of 5,400. Since then, the SPDR S & P 500 Trust ETF (SPY) has declined significantly, dropping more than 10% after breaking below the critical $500 support level, validating our concerns. With this move, we’re taking profits on our SPY May 16 $575/545 put vertical position (a 298% return on investment), which provided a hedge against portfolio downside. However, the bearish outlook persists, driven by escalating macroeconomic risks, including the latest tariff developments, concerns over the risk-free nature of U.S. Treasurys and a projected U.S. economic slowdown due to the most aggressive levies in over a century. We’re now shifting to selling options premiums with updated downside targets for the S & P 500 that would effectively erase the AI-led rally of the past two years. Market timing The S & P 500 , as represented by SPY, has broken below the $500 support level, confirming a bearish trend with significant momentum to the downside. The index’s rapid decline from the $570 resistance zone has exceeded our initial $540 target, and the technical setup now points to further downside towards $470 and $430, aligning with historical support levels from early 2023 and late 2022. The VIX spiking to 49 reflects heightened market fear and elevated options premiums, making it an opportune time to sell call verticals for bearish exposure. Market valuation and sentiment The S & P 500’s forward PE ratio has contracted further to 19.2x, reflecting the recent market decline, but it remains 2% above the 10-year average of 18.8x, suggesting valuations are still at risk of additional compression in a slowing economy. Bearish thesis: Consumer spending slowdown: The Conference Board’s future expectations index, which fell to a 12-year low in March, continues to signal a significant slowdown in consumer spending. Depleted savings and rising debt levels, as highlighted by warnings from Delta, Nike, and Walmart, are exacerbating this trend. Tariff developments: On April 2, new tariffs were implemented, marking the most aggressive levies in over 100 years. These tariffs are expected to disrupt global trade, increase costs for businesses, and further dampen consumer spending, adding pressure on corporate earnings and economic growth. U.S. Treasury concerns: Growing concerns about the risk-free nature of U.S. Treasurys have emerged as the aggressive tariff policies raise fears of inflationary pressures and potential fiscal strain. This uncertainty is eroding confidence in traditional safe-haven assets, contributing to broader market instability. Economic slowdown: The U.S. economy is expected to face a general slowdown as a result of these tariffs, which are likely to reduce global demand, disrupt supply chains, and increase costs. This environment threatens the earnings outlook for S & P 500 companies, particularly those reliant on consumer spending and international markets. Technical breakdown: SPY’s break below $500 confirms a bearish trend, with updated downside targets of $470 and $430, levels that would wipe out the AI-led rally of the past two years, reflecting the severity of the current market correction. The trade To continue seeking bearish exposure while capitalizing on elevated options premiums, we’re recommending selling an upside call vertical on SPY with the May 23 $500/540 Call Vertical @ $18.36 Credit. This entails: Selling the May 23 $500 call @ $26.04 Buying the May 23 $540 call @ $7.68 The maximum reward is $1,836 if SPY is below $500 at expiration. The maximum risk is $2,164 if SPY is above $540 at expiration. View this trade with updated prices at OptionsPlay . This strategy allows you to maintain bearish exposure while collecting a substantial premium due to the elevated volatility in the options market. With SPY’s technical breakdown and mounting macroeconomic pressures—including the impact of aggressive tariffs, U.S. Treasurys concerns, and an expected economic slowdown—this call vertical positions you to profit from further downside towards $470 and $430, with limited risk. 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: Zhang has a SPY position. 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. 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