The Dow Jones Industrial Average (DJIA) finished the trading week positively, gaining about 240 points from earlier lows and striving to stay above important moving averages. Earlier in the week, the stock market faced challenges due to bankruptcies and concerns about debt quality in the lending and banking sectors. **US-China Trade Talks** President Donald Trump proposed lowering tariffs on China, which helped lift the market. Fresh discussions between Trump and China’s President Xi Jinping are scheduled in the coming weeks, along with meetings with key Treasury officials. At the same time, the US government shutdown continues, delaying the release of official data. This hampers the Federal Reserve’s access to crucial information, potentially influencing interest rate cuts before the end of the year. The Dow Jones is a price-weighted index that includes 30 major US stocks. Its movement is affected by company earnings, macroeconomic data, and Federal Reserve interest rates. Dow Theory, created by Charles Dow, helps investors spot stock market trends by analyzing trends, trading volumes, and average comparisons. Investors can trade the DJIA through various methods like ETFs, futures contracts, and mutual funds. These options allow investors to gain exposure to the index without needing to buy all 30 individual stocks. **Market Volatility** As the Dow Jones stabilizes, we see a struggle between fear and greed. Recent worries from the banking sector caused the CBOE Volatility Index (VIX) to briefly rise above 25. It has since dropped to around 18, still above this year’s average, indicating ongoing anxiety. Traders should brace for sudden market swings. The market’s recovery depends on hope for renewed US-China trade discussions. We are preparing for a positive response as the meetings approach, following a familiar pattern seen during the 2019 trade negotiations, where rumors and scheduled talks often sparked short-term rallies. The possibility of lower tariffs is currently the biggest factor boosting industrial and tech stocks in the index. Interestingly, the ongoing government shutdown is beneficial for stocks in the short term. With the release of key economic data stalled, the Federal Reserve does not have new information that could change its plans for monetary easing. The CME FedWatch Tool reflects this, showing a greater than 90% chance of a quarter-point rate cut at the Fed’s November meeting. In this context, we believe it’s a good time to use options for a cautiously optimistic approach. Buying call options on the SPDR Dow Jones ETF (DIA) with December 2025 expiration dates could allow investors to profit from a year-end rally driven by Fed cuts and easing trade tensions. This strategy offers upside potential while limiting risk to the premium paid if trade talks fail or if the shutdown leads to unexpected economic harm. However, we must also recognize the recent vulnerabilities highlighted by bankruptcies in the lending sector. The regional banking crisis in March 2023 serves as a reminder of how quickly market fears can spread, even when interest rates are supportive. Thus, adding some protective puts or keeping hedges against a significant downturn is a wise strategy. Create your live VT Markets account and start trading now.

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