Good morning, traders. 

Donald Trump’s putting pressure on the Fed, calling for lower interest rates. 

His goal: Spark growth to offset the negative impacts of higher tariffs.

But Fed Chair Jerome Powell has pushed back. To him, inflation looks like the primary economic threat.

But Trump’s man at the Treasury, Scott Bessent, has proposed a way to do an end run around the Federal Reserve. To lower rates without the Fed’s help.

You see, to drive interest rates lower, the Federal Reserve buys bonds on the open market through the Federal Open Market Committee — or FOMC. Buy enough bonds, and the price of bonds rises and interest rates fall.

The U.S. Treasury can play that game too.

They can buy back U.S. Treasury bonds to drive up the price.

That could work out for the economy.

But for now, it leaves traders scratching their heads and asking …

Three-Body Problem

Before Bessent got involved, the market just had to discount the Fed’s actions.

Now, it must factor in what the Fed could do, as well as what Bessent could do.

And with fears about China dumping its Treasury holdings, you have three players with massive resources playing games with U.S. bonds.

So, what does that mean for stock options?

The Art of Chaos

It means volatility just got a second wind. That’s good for traders who know how to play it, but it also might be a good time to wait … and watch. 

In the past month or so, I’ve been a very active player. 

But given the volatility right now, and what may or may not happen with Treasuries, I’m inclined to be more passive this week. 

When uncertainty hits the bond market, you’ll see it bleed into equities — and fast. That means higher premiums on options. 

If you’re a seller, you can charge more. If you’re a buyer, you can position for the moves no one sees coming.

But here’s the kicker: You need to be selective.

High IV doesn’t mean every trade is a winner. 

It means the opportunity window has narrowed— and your timing and strategy matter more than ever.

Plus, big tech earnings are coming out fast — Tesla todayand Google and Intel on Thursday. I’ll be interested to see whether they carry the market as usual … or something else. 

Stocks That React First

So, where do we look?

First, think about rate-sensitive sectors. 

That means financials (banks hate low rates), homebuilders (love low rates), and utilities (steady yields become more attractive).

Another place to look is big tech and growth names. These are priced on future earnings, which become more valuable as rates drop.

Then you’ve got your defense plays. 

Stocks like gold miners or consumer staples can pop if rate manipulation starts spooking global capital.

You want to focus on liquid names with active options chains. 

No thin names. No moonshots.

Strategies That Work

If you’re trading in this environment, you’ve got a few smart ways to approach it. 

When you expect a big move but don’t know the direction, consider straddles and strangles. They’re perfect for FOMC weeks or Trump tweetstorms.

Next up are credit spreads. 

Let the high IV work in your favor. You’re betting on a range, not a direction.

Then you’ve got event-driven plays. Think Powell speeches, Treasury announcements, or hot CPI prints. 

Time your trades around those windows.

And if you’re more cautious? 

Watch for IV crushes and sell premium into the hype. Let the overreactors pay you.

Be Ready to Pounce

This isn’t a “buy the dip” market. It’s a “watch the tape and get paid when it rips” market.

Three different players pulling on the same string means price discovery gets chaotic. 

That’s not bad — that’s tradable.

Just don’t get caught guessing who’s in control. 

Trade what you see, not what you think should happen.

Stick with your setups, manage your risk, and remember — when markets get weird, option premiums get juicy.

And that, my friends, is dinnertime.

 – Jeff

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