By Steven M. Sears

Never be a Panican.

Panicans, which appears to be a signature new word coined by President Donald Trump, are people who make bad decisions.

"Don't be weak! Don't be stupid!" Trump recently posted on social media as the stock market convulsed from his tariff-induced volatility. "Be Strong, Courageous, and Patient, and GREATNESS will be the result!"

Taking investment advice from the man who tanked the markets admittedly feels odd. But there's a lot to be said for sitting tight and enduring this extreme market volatility.

The recovery from the market's lows might not happen in a straight line -- witness Tuesday's snapback rally and subsequent sharp decline -- but it will happen, so sit tight. Anyone who sells stocks at the dip could lock in losses and miss out on any additional future rally.

The time to sell was before Trump announced his tariffs. If you didn't want to sell -- and most investors didn't to avoid paying taxes on their gains -- you could have hedged. We suggested options hedging strategies not once, not twice, but three times before the tariff trauma.

Unless you believe the world is ending -- which would create larger problems than stock losses -- consider buying bullish call options on the battered S&P 500 index or any other security that you want to own.

Skeptics will opine that taking investment advice from Trump is like taking advice from an abuser, but the president has a point about trying to keep your cool.

During past market crises -- and it's difficult to count how many have occurred in the past 25 years -- many investors who failed to anticipate selloffs sold after prices plummeted. They locked in losses and missed the inevitable recovery rallies.

Sitting tight when confronted with massive paper losses as the market burns is difficult, especially now. Trump is trying to remake the world order that has bound nations since the early 1900s, and it's not clear if he will succeed.

Yet investors are so negative toward the stock market that it is likely a bullish sign, as reality is never as bad, or as good, as the market mob believes. That's why it makes sense to stay the course. If the president announces tariff relief, stocks will almost certainly surge.

Options are expensive -- the Cboe Volatility Index, or VIX, has more than doubled in a short time -- but calls cost less than stocks.

Some of you are likely wondering why we aren't suggesting selling cash-secured put options to buy stocks below the market price. We love that strategy, but Trump's unpredictability changes the trade's risk parameters. He could escalate his tariff ploy, sending stocks sharply lower, which would require put sellers to buy shares in an even worse market. For that reason, call buying seems like the best risk-adjusted decision.

Consider the SPDR S&P 500 exchange-traded fund's (ticker: SPY) May $500 call, which could be bought for about $22.90 when the ETF was at $496.48.

If SPY is at $550 at expiration, the call is worth $50. The risk: The ETF tanks and expires below the strike price. In that case, the money spent on the call is lost.

To lower their costs, investors could sell the May $530 call to create a "bull spread." If SPY is at $530 at expiration, the spread's maximum is about $16.45, or just above double the cost. The drawback is that profits are capped at the $530 strike.

Much remains to fret about. But there are facts that demand attention: Stocks are extremely oversold, and though Trump is hard to trade, investors will ultimately regain mastery of themselves, the markets, and everyone around them.

The process happens in stages. It's always violent and volatile, but therein lies opportunity for those who stay calm and make risk-adjusted decisions under extreme pressure.

Email: editors@barrons.com

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April 09, 2025 01:30 ET (05:30 GMT)

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