How to Profit From Sharp Stock Moves—Up or Down

Traders at the New York Stock Exchange: The final three 2026 meetings of the Federal Reserve loom large. (Michael M. Santiago/Getty Images)

Summer vacation is over, and difficult issues that the investor class set aside to focus on sybaritic pursuits are now resurfacing. Some of the most critical ones will soon find resolution.

After the Situational Awareness hedge fund imploded under the weight of extraordinary leverage, many investors abandoned momentum trades, especially in the artificial-intelligence sector. They secured profits and diversified beyond the top 20 or so largest technology stocks.

But as investors prepared for the post-summer return, many conversations have turned to the relative merits of seeking higher returns and greater risks that are inherent in concentrated positions versus continuing to shelter in the safety of the broader market.

The S&P 500 index is up about 14% this year, a strong historical performance, but many of the benchmark’s top stocks are up much more. Nvidia has advanced about 24% this year, Intel is up 160%, and Micron Technology is up 256%, just to cite a few hot stocks. Technology earnings have been tremendous, and that supports the case for concentrated positions.

What happens next is far from clear, though two basic outcomes are likely: The AI trade will gain new energy, and momentum trading will again define the market—or investors will lean more toward the safety of the S&P 500.

Options trading patterns, which often foreshadow what happens in the stock market, are unfortunately not particularly insightful at present. Implied volatility is so muted that it is difficult, if not impossible, to convert pricing into a meaningful probability matrix for stock performance. The Cboe Volatility Index, or VIX, is around a somnolent 15, well below its long-term average of 19.

All anyone really knows at this point is that investors face a catalyst-heavy calendar. The final three 2026 meetings of the Federal Reserve loom large. Many investors are afraid the central bank will raise interest rates to offset inflation, which would be bad for stocks—and not just because it will jump-start bond yields. Professional investors use lots of borrowed money to make leveraged wagers. The less they pay for margin loans, and leverage, the more stocks they can buy.

We previously noted the Fed is unlikely to raise rates before the Nov. 3 midterm elections, but every economic report that influences the Fed’s deliberations has the power—more than usual—to generate stock-price volatility. Investor sentiment is so confused that stock moves are likely to be even more dramatic than priced in the options market.

To profit from the end-of-year zeitgeist, investors could consider a “strangle” strategy that profits from sharp moves up or down. It entails buying a call option and a put option with strike prices above and below the associated security. The approach is popular when implied volatility is low and sharp stock moves are expected, but the direction is uncertain.

With the State Street S&P 500 SPDR exchange-traded fund at $766, an aggressive investor could buy the December $795 call and the December $750 put for about $27.60. If the ETF is at $840 at expiration, the call is worth $45. At $705, the put is worth $45.

The strategy’s key drawback is expense. Stocks must move more than the trade’s cost to prove profitable.

During the past 52 weeks, the ETF has ranged from $629.28 to $779.37.

The December expiration captures the conclusion of the Fed’s interest-rate-setting meetings on Sept. 16, Oct. 28, and Dec. 9, the stock volatility that surrounds those events, and other catalysts that will emerge as the 2026 investment year nears its end.

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