The Dow Jones Industrial Average rose by approximately 550 points on Monday, driven by strong performances from tech stocks, notably Apple. Apple’s shares increased following an upgrade to ‘buy’ from Loop Capital, attracting market interest and contributing to the overall tech market rally.

The US federal government shutdown has persisted for twenty days, with no immediate resolution. A possible near-term funding agreement is being considered, though Congress remains in recess, delaying further budget negotiations.

Corporate Earnings Update

In corporate earnings, 76% of companies on the S&P have surpassed Q3 expectations, boosting market momentum. This has strengthened confidence as the fourth quarter approaches.

Inflation remains a concern, with the Consumer Price Index indicating continuous inflationary pressures. Expectations are set for a year-on-year reading of 3.1%, representing ongoing price increases.

The Federal Reserve continues to address these inflationary pressures within its mandate for price stability and full employment. With inflation above the desired 2% Year on Year, the Fed is expected to keep its firm stance to mitigate rising costs tied to supply chain challenges.

With the market showing strength, we see an opportunity mixed with caution. The recent rally, led by tech giants like Apple, makes it tempting to chase the upside, but underlying risks are significant. With the VIX, a measure of market fear, currently sitting near a low of 14, options premiums are relatively cheap, presenting a cost-effective time to buy protection against a sudden reversal.

Strategic Options for Traders

The ongoing government shutdown is the most immediate catalyst for volatility. We’ve seen similar situations before, like the prolonged shutdown in late 2018 which preceded a sharp market decline before a resolution sparked a rally. Traders should use options on broad market ETFs to play the outcome, with call options positioned for a relief rally on a funding deal and put options providing a hedge if talks collapse again.

Strong Q3 earnings, with 76% of S&P companies beating estimates, are providing a solid floor for now. However, this positive backdrop can create sharp sell-offs for any company that misses expectations, making single-stock options risky. A better strategy may be to trade volatility around key earnings announcements for companies yet to report, expecting large moves regardless of the direction.

The persistent threat of inflation cannot be ignored, as it directly influences Federal Reserve policy. With the last Consumer Price Index reading for September 2025 showing an annual inflation rate of 3.4%, we are still well above the Fed’s 2% target. This data reinforces the expectation that the Fed will not be cutting interest rates soon, placing a ceiling on how high this rally can go.

Given these conflicting signals, derivative strategies should focus on managing risk. We are considering selling covered calls against strong-performing tech stocks to generate income while capping some upside. At the same time, buying put spreads on indices like the SPX offers a defined-risk way to protect portfolios from a market downturn triggered by the Fed or political gridlock.

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