The Dow Jones Industrial Average jumped about 550 points on Monday, mainly due to a strong performance from tech stocks, especially Apple. Apple’s shares rose after Loop Capital upgraded their recommendation to ‘buy,’ drawing attention from investors and sparking a rally in the tech sector. The U.S. government shutdown has lasted for twenty days and shows no immediate sign of ending. Although there is talk of a possible funding deal, Congress is on recess, which is slowing down budget discussions.

Corporate Earnings Update

In the business world, 76% of companies in the S&P 500 have exceeded expectations for the third quarter. This positive news has boosted market confidence as we move into the fourth quarter. Inflation is still a concern, with the Consumer Price Index (CPI) showing ongoing inflation. The yearly reading is expected to be 3.1%, indicating that prices continue to rise. The Federal Reserve is working to control these inflationary pressures while focusing on price stability and full employment. Since inflation is above the target of 2% year-over-year, the Fed is likely to maintain a firm stance to help manage rising costs associated with supply chain issues. As the market shows strength, there’s an opportunity, but it’s wise to be cautious. The recent rally led by tech giants like Apple makes chasing profits tempting, yet there are significant risks involved. Currently, the VIX, a measure of market fear, is low at around 14, making options premiums cheaper and offering a good chance to buy protection against a potential downturn.

Strategic Options for Traders

The ongoing government shutdown is the main factor that could lead to volatility. We’ve experienced similar situations before, notably during the lengthy shutdown in late 2018 that created a sharp market decline, followed by a rally after a resolution. Traders might consider options on broad market ETFs to navigate this situation. Call options can be used to bet on a relief rally if a funding deal is reached, while put options can serve as a safety net if negotiations fail again. With 76% of S&P companies posting strong Q3 earnings, we currently have a solid market foundation. However, any company that fails to meet expectations could face sharp sell-offs, making options trading on individual stocks risky. A more effective strategy might be to trade on expected volatility around key earnings reports for companies that have not yet announced results, anticipating big moves in either direction. The ongoing threat of inflation is crucial, as it directly impacts Federal Reserve policies. The latest CPI report for September 2025 shows an annual inflation rate of 3.4%, still significantly above the Fed’s 2% target. This reinforces the expectation that the Fed won’t be lowering interest rates anytime soon, which could limit how high this market rally can climb. Given these mixed signals, traders should focus on risk management strategies. One option is to sell covered calls on strong tech stocks to generate income while placing a cap on potential gains. Additionally, purchasing put spreads on indices like the SPX can provide a defined-risk approach to protect portfolios against downturns caused by Federal Reserve actions or political gridlock. Create your live VT Markets account and start trading now.

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