Wednesday’s trading session delivered a clear message: Jerome Powell and the Fed still hold the reins, and their latest moves shook the markets.
After the Fed announced a rate cut as expected, Powell’s press conference revealed more than just monetary policy adjustments. His tone was unusually definitive, emphasizing that inflation remains a key issue.
And if that wasn’t enough, the updated dot plot laid bare the Fed’s projection for only one or two cuts in 2025 — a stark contrast to what the market was hoping for.
The sell-off was swift and brutal.
The S&P 500 dropped nearly 3%, the Nasdaq plummeted 3.6%, and the Russell 2000 shed over 4%. Even bond markets failed to provide a safe haven, with long-term Treasuries down more than 1.6%.
This level of correlation between stocks and bonds — hovering around 75% to 80% — only added to the pain. For anyone banking on a traditional portfolio mix to cushion the blow, Wednesday was a harsh reminder that these are not normal times.
Volatility surged as well, with the VIX spiking nearly 75% on the day. For options traders, that opened up opportunities — but it also underscored the importance of being prepared for sudden market turbulence.
This is where hedges come in.
Let’s be honest — days like Wednesday can wreck a portfolio if you’re not prepared. But for traders like me, who consistently hedge against downside risks, the chaos becomes manageable.
In fact, it can even turn profitable. Take my S&P 500 ETF (SPY) and Nasdaq 100 (QQQ) hedges as examples.
For SPY, I set up a bear put spread — buying a $608 put and selling a $590 put — with a maximum profit of $18. As of now, I’ve collected $15 in credit, and I’m letting it ride. Similarly, for QQQ, I bought a $533 put and sold the $510, locking in a $16 credit while targeting a $23 max profit.
These aren’t speculative trades — they’re risk management tools.
When the market nosedives like it did, these positions help offset drawdowns. On Wednesday, I saw an unrealized portfolio drawdown of $25,000. Thanks to hedges, that could be reduced to as little as $3,000, with hedge profits totaling over $22,000 if everything hits its target.
That’s the kind of math that keeps you in the game during turbulent times.
Hedging isn’t about timing the market perfectly — it’s about staying consistent. For instance, I’ve been hedging monthly all year, even during periods of low volatility.
September, October and November hedges didn’t pay off, but hedges from April and August did.
December is shaping up to be another big win. By spreading out the cost of hedges and reaping the rewards during significant sell-offs, I’ve managed to preserve my portfolio while staying positioned for opportunities.
At the end of the day, it’s not about predicting every market move — it’s about protecting yourself when the unexpected happens. Days like Wednesday show why hedging isn’t optional — it’s essential.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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The profits and performance shown are not typical. We make no future earnings claims, and you may lose money. The trades expressed are from historical back-tested data from June 2022 through April 2024 combined with Chris’s live money trading from June 2024 through December 15, 2024 to demonstrate the potential of the system. The average winning trade during the backtested data was 14.3% while the average losing position was 65.3% per trade and a 89.8% win rate.
