An options trade for playing a potential move to record levels in the Nasdaq-100

Despite trade tensions with China, U.S. equities rallied in May, with the S&P 500 and Dow Jones Industrial Average increasing 6% and 3.8%, respectively, while the Nasdaq-100 surged 9%. An analyst remains bullish, anticipating further upside and a retest of all-time highs, fueled by resilient earnings, cooler-than-expected inflation data (PCE at 2.1% in April), and optimism for a resolution in trade tariffs this summer, employing a risk reversal strategy on the QQQ ETF targeting a $540 level.

Analysis

U.S. equities demonstrated a significant V-shaped recovery in May, with the S&P 500 and Dow Jones Industrial Average appreciating by 6% and 3.8% respectively, while the higher-beta Nasdaq-100 (QQQ) surged 9%—its best month since November 2023—following a nearly 25% bounce from April lows, leading analysts to reconfigure 2025 end-of-year price targets. This rally is underpinned by resilient corporate earnings and a Personal Consumption Expenditures (PCE) inflation rate that cooled to 2.1% in April, below expectations. Despite persistent U.S.-China trade uncertainties, highlighted by President Trump's accusation of China violating its preliminary trade deal and Treasury Secretary Scott Bessent's acknowledgement of stalled talks which caused a temporary dip in equities, the contributing analyst expresses optimism for a trade resolution this summer. This positive outlook, coupled with the strong market momentum and favorable inflation data, suggests markets are poised to push higher, potentially retesting all-time highs and challenging under-invested participants. The analyst is actively participating in this bullish view via a specific risk reversal options strategy on the QQQ, selling the June 27 $500 puts for $6.25 and buying the QQQ June 27 $525 calls for $8.00, at a net debit of $1.75, targeting a $540 retest for the ETF, and generally uses the 200-day moving average (around $497) as a reference for selling puts.

Key Decisions for Investors

• Investors might consider maintaining a bullish outlook on U.S. equities, especially the Nasdaq-100, given the strong May performance (QQQ +9%), cooling PCE inflation at 2.1%, resilient earnings, and analysts revising 2025 price targets upwards, with an all-time high retest anticipated.
• Vigilance regarding U.S.-China trade negotiations is crucial, as updates, such as President Trump's recent comments on deal violations or Treasury Secretary Bessent's remarks on stalled talks, can induce market volatility despite underlying optimism for a resolution, which could impact the 'straight-line path' of negotiations.
• Evaluate defined-risk options strategies, such as the specific QQQ risk reversal detailed (selling June 27 $500 puts and buying June 27 $525 calls for a $1.75 debit) targeting the $540 level, to participate in anticipated upside while managing exposure, noting the analyst's use of technical levels like the 200-day moving average for establishing put selling points.