The Market Will Panic Again. Use These Options Strategies to Profit.

Traders on the floor of the New York Stock Exchange on Friday, Aug. 1. (Michael M. Santiago / Getty Images)

Corporate data matters more than government data.

The recent dramatic revision to jobs data was surprising, but the stock market impact will likely be muted for three key reasons:

1. Corporate earnings are growing, often faster than expected, which solidifies support for rising stock prices. If major corporations are growing, and that trend continues, weak economic reports are likely bullish.

2. Weak jobs data resurrected hopes for lower interest rates. The Federal Reserve’s next interest-rate setting meeting concludes on Sept. 17. Fed Chair Jerome Powell is on the defensive. Two of his colleagues favor lower rates, a third unexpectedly quit, and President Donald Trump is criticizing Powell’s hawkishness.

3. Markets are complicated, but investors are ultimately simple: They value making money above all else. The president uses that to his advantage, and that fact, when combined with points one and two, argues for continued positioning for higher stock prices.

If there were significant fear that stocks were in danger of a material decline, option trading patterns wouldn’t be balanced between greed and fear. The S&P 500 index remains near historic highs.

The Cboe Volatility Index , or VIX, a broad measure of investor sentiment, is hopping around its long-term average of 19, perhaps because many investors believe the president is using his powers to enhance America’s economy and, by extension, the stock market.

The challenge thus remains navigating a confused environment. When in doubt, revisit points one, two, and three.

If you agree with the bullish thesis, two strategies merit consideration: put option sales and call option spreads.

Anyone with the luxury of time should treat market declines as buying opportunities. Keep a list of stocks you want to buy or own more of. It is almost painful to repeat that old advice, but last week’s plunge after the jobs report shows how easily investors are pushed off course.

When the market mob panics—as it did in reaction to the bad jobs data, and as it will do again and again—take advantage of stock price weakness and elevated put prices. Sell puts to buy stock at lower prices, provided you can warehouse the shares for a minimum of three to five years, and ideally longer.

If the stock keeps rising, investors keep the put premium. In other words, put sellers get the options market to pay them to do what they would have done anyway.

Despite the simplicity, not everyone likes selling puts when stock prices are elevated, while others don’t like keeping large amounts of cash to buy stock.

Call spreads—buying one call and selling another with a higher strike price and the same expiration—mitigate those risks, while positioning investors to benefit from stock gains. The strategy can produce returns of 100% if everything works as planned.

Consider the Invesco QQQ Trust exchange-traded fund (ticker: QQQ), which tracks the Nasdaq 100 index . With the ETF at $560.27, the November $565 call could be bought for $24 and the November $590 call could be sold for $11.52. During the past 52 weeks, QQQ has ranged from $402.39 to $574.63.

If the ETF is at $590 at expiration, the spread is worth a maximum profit of $12.52. If you want to get fancier, also sell the QQQ November $555 put for $18.65.

The QQQ trade expresses faith in the artificial-intelligence theme, the leadership of major technology stocks, and the broad market’s long-term trend.

Of course, stocks never advance in a straight line. There will be volatility, but the passage of market time reveals a Nietzschean truth: that which doesn’t kill stocks makes them stronger.

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