The U.S. economy is expecting an increasingly uncertain outlook in the coming months. As markets wait for the release of the October Consumer Price Index (CPI), investors are looking for ways to position themselves strategically to capitalize on any potential market moves.
In times of economic uncertainty, investors often take a defensive stance by allocating fewer resources to riskier assets, such as stocks and futures contracts. As a result, they turn to less volatile investments such as bonds and treasuries. With bond yields staying low throughout most of 2020, this strategy has been attractive to many professionals and retail investors.
Investors should also watch the Federal Reserve’s response to the October CPI figures. The fed has committed to keeping benchmark rates at near-zero levels until the economy reaches a healthy level of economic activity and inflation. If the inflation rate exceeds expectations and the Fed signals a potential increase in rates, investors may want to position themselves to capitalize on any resulting market moves.
Options straddles and certain spreads may be attractive for investors who are bullish the market but at the same time remain cautious. By selling calls and puts at a similar fee, investors can take on upside or downside risks while at the same time limiting their maximum losses should the market react unfavorably. In this way, investors can protect their portfolios in times of volatility while still participating in the upside potential – a classic win-win strategy.
In addition to options straddles, investors can also benefit from leveraged ETFs. Leveraged ETFs can provide returns that outperform their underlying index while also limiting the downside risk associated with the market’s fluctuations. As such, these instruments are useful to investors in markets that are subjected to systemic risks and market volatility.
To sum up, in a time where markets are waiting for the October CPI release, investors should approach their investments strategically. Allocating fewer resources to riskier assets, leveraging options straddles and taking advantage of leveraged ETFs can all be viable strategies for investors who are seeking to maximize returns during uncertain times.
