One of the cleanest opportunities you’ll ever get in the market is when the reaction to a headline becomes too extreme. And Thursday’s tariff news gave us a perfect example of how that plays out — and how to trade it.
The setup started overnight, when headlines broke that tariffs might be rolled back. Small caps exploded higher at the open. The Russell 2000 ETF (IWM) shot up nearly 2% before reversing hard.
That kind of price action screams overreaction, and for good reason. The market treated it like tariffs were gone forever — but by midmorning, it was clear that wasn’t the case.
There are still going to be appeals and enforcement to sort through.
That kind of rapid unwind is exactly why 0DTE puts work so well in these situations. The move up is sharp, the reversal is fast and if you’re positioned right, you don’t need much time in the trade.
You’re not trying to hold for days. You’re just capitalizing on the emotion — the knee-jerk rally that overcorrects and then snaps back.
Why I Avoided the Small-Cap Trap
Even though small caps looked like they stood to benefit from the news — and they probably do — in theory — I didn’t touch them. I’ve been in this game too long and burned too many times waiting for small caps to lead.
Until I see real strength and actual momentum, I’m staying out. The S&P 500 (SPY) is holding above key levels. IWM isn’t. That’s the difference.
If we eventually get rate cuts, small caps should benefit, but that’s not enough. The market has been waiting on rate cuts for almost two years now, so I’m not jumping in until I see confirmation.
So yes, the overreaction gave us a clear fade opportunity. But the reversal? That’s the part where discipline matters most.
You don’t want to chase a move just because it looked good out of the gate. You want to wait, see the fakeout and hit it with conviction when the setup is obvious.
That’s how you use 0DTE puts the right way — not just for speed, but for precision. When the market gives you a gift, take it. But know exactly what you’re taking and why.
Graham Lindman
Graham Lindman 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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