The current global landscape, marked by escalating geopolitical tensions, has created a highly volatile investing environment. Inflationary pressure, supply chain disruptions, and fluctuating interest rates characterize this environment. In such times, traders and investors must identify strategies to protect their investments while maximizing potential gains.

When volatility hits the market, one financial instrument consistently proves effective in generating returns for investors: options. Options trading emerges as a strategic instrument that can help hedge risks and leverage volatility. To balance risk and return effectively, selecting the right stocks is crucial for successful options trading strategies.

What is the need to use options during global uncertainty?

Any uncertainty in the geopolitical scenario naturally affects the financial markets, and it comes in the form of volatility. Volatility can be seen as a risk from a traditional investing perspective, but the same volatility comes as an opportunity in the options trading perspective, as it helps inflate premiums and increase the profit potential. Global uncertainty enhances market volatility and makes room for well-timed and risk-managed trades.

Options provide higher flexibility, and whether the market goes sideways, up, or down, options can be used strategically to benefit in different scenarios :

• Speculation: Investors can use calls or puts to bet on market moves without fully committing capital.
• Hedging: One can protect their stock holdings throughputs.
• Income: One can sell covered calls or cash-secured puts in highly volatile environments.

While there is a basic understanding of how options can help in volatile times, let’s have a look at the five stocks that must be on every investor’s list for trading in these uncertain times:

NVIDIA Corporation (NVDA)

With a current market cap of approx. $2.9 trillion, this semiconductor giant is the incontestable leader in AI chips and data center GPUs that are currently the backbone of every technology model being built globally. Its earnings release pointing at the company’s exponential revenue growth of over 250% Y-o-Y makes it the perfect contender for one of the market's most volatile and actively traded stocks. This volatility can help in feeding heavy options volume, particularly when it comes to short-dated weekly contracts. Despite high valuations, NVIDIA has been able to uphold its position in the market and continues to surprise investors with new partnerships and data center integrations. NVIDIA holds power in pricing because of its near-monopoly nature in the semiconductor industry. It also benefits from sovereign AI investments globally, specifically from the United Arab Emirates, Saudi Arabia, etc. These events add more fuel to the volatility that the stock holds, making it perfect for options trading.

Options Strategies to consider:

Short puts: Traders can collect premiums by betting on support levels around earnings release.

Iron Condor: This strategy can be used when volatility is high but is expected to stabilize after earnings are released.

Bull call spread: This strategy can be effectively implemented if the stock is bullish and risk needs to be limited. It will help cap gains.

Pfizer Inc. (PFE)

One of the biggest names in the pharmaceutical sector, which gained popularity during COVID-19, is now considered an undervalued stock with a market capitalization of approximately $160 billion. Pfizer has recently been actively involved in oncology and mRNA therapies. Moreover, the kind of research and work that Pfizer is undergoing in cancer immunotherapy and rare diseases is commendable and holds long-term potential with their broad use cases. With COVID again coming back in talks and SARS diseases making global headlines, pharmaceutical stocks have returned to the spotlight. While these all point to fundamental analysis, the stock’s low Beta makes it a perfect candidate for options trading. This criterion would aid in stable premium collection, and its lighter implied volatility makes it ideal for income-focused options.

Options Strategies to consider:

Diagonal spread: While maintaining bullish exposure, investors can exploit time decay to make gains.

Protective collar: This strategy is best suited for investors already holding shares and seeking downside protection.

Cash-secured puts: The lower the IV points, the more likely you are to use this strategy to generate income and buy stock at a lower price.

Meta Platforms Inc. (META)

With its ownership of Facebook, Instagram, and WhatsApp, Meta has managed to dominate the digital engagement space worldwide with a market cap of approximately $1.3 trillion. Meta has been restructuring fiercely in recent years to stabilize its ad revenue, cut costs, or shift its primary focus to AI. After a rough patch in the past two years, Meta has returned to the limelight with its promising earnings release and reduced metaverse spending. With its refocused aggressive AI investments and integration of generative AI, Meta is headed toward long-term growth. Volatility remains high whenever an earnings release is scheduled, making META one of the best picks for options trading.

Options Strategies to consider:

LEAPS Options: The investor should focus on META’s long-term strategies and, therefore, buy long-dated calls to benefit from META’s long-term AI and metaverse themes.

Earnings Butterfly: Narrow price movements can be targeted after big rallies.

Apple Inc. (AAPL)

Apple, being the US tech giant, has always proven to be a haven for investors during times of global uncertainty, primarily because its strong financials, recurring revenue model, and broad economic moat provide it with the much-needed resilience during downturns, with a market cap of approx. $3.2 trillion, Apple has managed to keep its markets steady in India and Southeast Asia while expanding its diverse range of services with new inclusions, such as Apple Pay, despite global macroeconomic tensions. In these times of uncertainty, stocks like Apple act as a safety shield for investors, but sometimes it’s essential to safeguard these shields, too, and options trading is the only way to implement that.

Options Strategies to consider:

Straddle: Significant price swings are observed, specifically around Apple’s earnings release. A straddle strategy, i.e., buying both a call and a put, can help capitalize on volatility, irrespective of the direction of the price movements.

Covered call – By selling calls on already-held Apple stock, investors can collect steady premiums.

Exxon Mobil Corp (XOM)

While every other stock on this list has strong backing and is a renowned stock, one sector that remains highly volatile amidst the current geopolitical scenario is the energy sector. Russia-Ukraine and Middle East tensions have significantly contributed to rising oil prices, benefiting ExxonMobil. With a market cap of approximately $425 billion and a robust dividend history, this stock is perfect for conservative investors. With crude oil hovering above $85/barrel and OPEC maintaining discipline in supply, ExxonMobil shows signs of resilient profits. Moreover, its investment in carbon capture also makes it a powerful player in ESG portfolios. The energy sector is one of the highly affected sectors regarding geopolitical issues, and that is one of the significant reasons why XOM is the perfect option candidate.

Options Strategies to consider:

Calendar spread: Investors can anticipate short-term consolidation with a long-term bullish bias.

Covered calls: This strategy would help earn yields over and above the high dividend income.

Investors should consider the various macroeconomic factors and volatility index and prioritize stocks with tight bid-ask spreads and high open interest, as this would provide flexibility in trading. A smart investor would not fear volatility but rather use it to their advantage. With these stocks that offer a balance of volatility and fundamental strength, investors can benefit even in times of uncertainty.

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