DailyPlay – How to Trade Liberation Day & Closing Trades (AAPL, PDD, COP) – April 4, 2025

How to Trade “Liberation Day”

President Donald Trump unveiled significant tariffs, marking a pivotal shift in U.S. trade policy. Dubbed “Liberation Day,” these measures impose a 10% baseline tariff on all imports, effective April 5, with higher reciprocal tariffs for countries with large trade deficits, effective April 9, targeting over 100 trading partners. And this mornings news of China retaliating with 34% tariffs next week, sends risk assets lower and we are at risk of heading down to our $5100 downside target.

Market Reaction

Equities sold off heavily overnight and extended into the cash session on Thursday with the S&P down 4.84%, the Nasdaq-100 down 5.41% and the Russell 2000 Small Cap Index down 6.59%. Additionally, the selloff was broad based with only Consumer Staples ending in the green up 0.58% on the day. The equal weight S&P 500 index was down 4.76%, suggesting that stocks were hit across the board. VIX closed at an 8 month high above 30%, suggesting that traders fear potentially more downside in the coming weeks. 

Potential Positives

The announcement reduces uncertainty by clarifying policy, potentially stabilizing market expectations. Some countries, like Australia, have ruled out retaliatory tariffs and expressed willingness to negotiate, suggesting room for dialogue. Early responses indicate limited immediate retaliation, with South Korea’s acting president urging negotiations to minimize impact, which could mitigate short-term trade war risks, though this remains uncertain.

Potential Negatives

Inflation is likely to rise, with estimates suggesting a 1.4-2.2% increase in core inflation due to higher import costs, as per a CNBC analysis (Trump’s tariffs are expected to raise consumer prices, but a key question remains: By how much?). Consumer confidence has plunged to a four-year low, driven by fears of recession and price hikes, with the Conference Board survey showing worries about trade policies. Businesses may face shrinking margins as they balance declining sales with maintaining market share, risking stagflation as growth slows and inflation persists, with economic forecasts warning of these pressures.

Stay Updated – Join us every Monday Morning for our Macro Research & Trade Ideas webinar at 8:45AM EST. Register for free at: https://optionsplay.zoom.us/webinar/register/6917437339013/WN_0xqvl8yJQ8y8j_nYiroOkQ

Trade Ideas 

In this market environment, there are a few ways to think about how to invest going forward:

1. Safe haven assets (Treasuries & Gold) – As recession risks rise with the implementation of tariffs and the US economy slows, safe haven assets will likely continue to see outsized demand. 
2. Hedging downside – If the S&P 500 closes below $5500 this week, further downside is likely and hedging using a 2-3 week put spread could be useful to offset downside risks. 
3. Bearish on Consumer Discretionary & Durables – Companies that have high exposure to imported consumer goods have the largest risk of further downside as consumer spending slows and margin compression. Consumer durable purchases most likely to suffer larger drawdowns as uncertainty erodes further. 
4. Bullish on Domestic Manufacturing – Companies that benefit from the protections that tariffs provide and a shift to onshoring production such as NUE, INTC, LMT, TSN, ADM, CAT, DE, TXN, BA, etc. 

Closing Trades

• AAPL – 74% gain: Buy to Close 2 Contracts (or 100% of your Contracts) May 2 $225/$240 Call Vertical Spreads @ $1.51 Debit. DailyPlay Portfolio: By Closing both Contracts, we will be paying $302. We initially opened these 2 Contracts on March 26 @ $5.73 Credit. Our gain, therefore, is $844.

• PDD – 26% loss: Buy to Close 3 Contracts (or 100% of your Contracts) May 2 $120/$110 Put Vertical Spreads @ $4.99 Debit. DailyPlay Portfolio: By Closing all 3 Contracts, we will be paying $1,497. We initially opened these 3 Contracts on March 27 @ $3.18 Credit. Our loss, therefore, is $181 per contract. The margin requirement per contract is $1,000 and we received a Credit of $318 per contract giving us a net margin requirement of $682. Our loss is $181 per contract which gives us a net loss of 26%.

• COP – 46% loss: Buy to Close 4 Contracts (or 100% of your Contracts) May 2 $102/$95 Put Vertical Spreads @ $3.88 Debit. DailyPlay Portfolio: By Closing all 4 Contracts, we will be paying $1,552. We initially opened these 4 Contracts on April 1 @ $1.25 Credit. Our loss, therefore, is $263 per contract. The margin requirement per contract is $700 and we received a Credit of $125 per contract giving us a net margin requirement of $575 Our loss is $263 per contract which gives us a net loss of 46%.