Here we are with another Congress, another President, and another looming US debt ceiling crisis. The US has had to up its debt ceiling dozens of times over the years. The USA has not had a budget surplus since 2001 so we are always borrowing to pay the bills. About 97% of everything that the government owes is money that has already been spent. Nevertheless, fiscal conservatives (and those who simply want to shut the government down to make a point) routinely use these times to push for reduced spending going forward. If the crisis goes on very long it tends to drive stocks down. For options traders a debt ceiling crisis can be a golden opportunity to profit as we are able to make money in both up and down markets here at Top Gun Options.
Debt Ceiling Crisis Drama Drives Market Up and Down
On one hand Congress has always come across in the end and increased the debt ceiling so that the US government does not default on its debts, destroy its credit, and throw the world financial system into chaos. If one could be absolutely certain that this will happen again it would do a lot to calm the markets. But there is always the suspicion that this is all like the little boy who cried “wolf” over and over again until no one believed him and that is when the wolf came and ate everybody. Thus the market will become increasingly volatile as deadlines approach. The first is when the debt limit is breached. This, according to Treasury Secretary Yellen, will be January 18. Then the final date will be the “x” date when all of the “extraordinary measures” that the Treasury can use to put off the inevitable run out of steam and the USA really is in default on its debts. That will be somewhere between June and August. Much like the Fed deciding on interest rate hikes, the market will go up and down based on what they think Congress will do, what the President will do, and what the Treasury can do to held the wolf at bay.
Hedging Risk in Options Trading
Options trading holds a great advantage over just trading or investing in stocks. One can hedge their risks with calls and puts. At Top Gun Options we commonly use bull and bear spreads to lock in profits and limit risk as the market swings up and down. This approach will be applicable to trading market volatility as everyone deals with the looming default on US government debts. The last year has been difficult for the stock market as the Fed belatedly began to raise interest rates. A recession is likely and, in fact, we are already in one. As such this is not a good time for the market to be confronting a potential debt default. War still rages in Ukraine, China is still challenging Taiwan’s airspace, and Fed rate hikes are not over with (although they may taper off).
Trading Options with the Squadrons at Top Gun Options
Now is not a good time to be trading options alone in the markets. War, inflation, high interest rates, recession and now a potential default of US debts all have the potential to take the market into a dive down to a not-as-of-yet determined bottom. The advantages of working with one of the squadrons at Top Gun Options are two. You will be working with experienced traders who potentially print money no matter which way the market is going. The other is that we have a wealth of connections and information sources that give us unique market insights and early information before it becomes available to the wider market.