Some analysts believe that the S&P 500 must fall at least 10% before it will trigger "Trump put options", that is, intervention will provide support for the stock market.

The U.S. stock market fell sharply again on Thursday (February 27) as concerns caused by Trump's tariffs suppressed optimism brought about by Nvidia's strong financial report. The S&P 500 fell 1.6%, now erasing all the gains this year, with a cumulative decline of slight this year; the Nasdaq Composite fell 2.8%, with a cumulative decline of 4% this year; the Dow Jones Industrial Average closed down 0.5% on Thursday.

If the sell-off intensifies, whether Trump will intervene to provide support for the stock market is a hot topic that Wall Street is discussing.

Bank U.S. strategist Michael Hartnett mentioned "Trump put options" in an interview with Bloomberg TV earlier this week, saying: "If the stock market falls uncontrollably, Trump may take countermeasures."

Hartnett said: "I think if Trump does not make any attempt to support the stock market, whether through fiscal or restricting the authority of the Department of Efficiency (DOGE), investors will worry that the S&P 500 will fall to around 5,700 points, or around 5,600 points."

What is "Trump put options"?

Previously, investors often talked about "Feder put options", that is, the Fed would intervene before things start to worsen, thereby eliminating volatility that could undermine the stability of the stock market.

This is equivalent to the Federal Reserve selling a put option, and the put seller is obliged to buy the stock when the stock price falls below a certain level (i.e., the exercise price). Investors have coined the term "Trump put options" based on this concept.

It should be clear that neither the "Feder put" nor the "Trump put" means that the Fed or the Federal Reserve will intervene in buying stocks on its own, but rather any metaphor for any remark or direct action that may inspire investors to buy.

Where does the idea of ​​"Trump put options" come from?

Trump sees the performance of the U.S. stock market as a barometer of his performance as president. During his first term, Trump often posted on social media to celebrate the stock market’s record highs, and he often publicly praised the rise in stock markets during his administration. "Trump is obviously always paying attention to the stock market and using stock market performance as a real-time indicator of whether the market supports him," said Jason Draho, head of asset allocation at UBS Global Wealth Management in America. "However, Trump has also experienced periods of volatile stocks, and his reactions during these periods can provide some clues about how similar situations may be handled today. At the end of 2018, the S&P 500 fell nearly 20% from its peak, erasing the gains earlier in the year because investors were upset by Trump's trade war and the Federal Reserve's interest rate hikes.

Binky Chadha, chief strategist at Deutsche Bank, noted that after the S&P 500 fell about 10% from its high, Trump's strategy changed. Instead of further escalating the situation, Trump quickly reached an agreement to end the trade war. But at the time, this did not immediately bring comfort to investors. On Christmas Eve 2018, U.S. Treasury Secretary Mnuchin said he had a phone call with the CEOs of several of the largest banks in the United States. Mnuchin said that CEOs assured him that the banking industry had sufficient liquidity, but investors still accelerated the sale.

Chada concluded in a 2019 report: "Even if put options are triggered, they are not very effective."

More than a year later, in March 2020, the new crown epidemic-induced stock market crash once erased all the gains accumulated by the S&P 500 since the beginning of Trump's term, but the subsequent spending plans introduced by the United States and the Federal Reserve's bold actions quickly curbed the sell-off, and the stock market quickly rebounded.

How much will the stock market fall trigger "Trump put options"?

Chada believes that it may be a little early to answer this question now, because Trump has not been in office, but he expects the S&P 500 to fall at least 10% from its current level to encourage Trump andHis team takes action.

Others doubt whether Trump's enthusiasm for the stock market is waning. Michael Brown, senior research strategist at Pepperstone, noted Trump’s radical approach to deporting immigrants and cutting spending shows that he may be more willing to tolerate more stock market declines this time. This is a risk that investors should keep in mind.

For example, Trump posted on Truth Social earlier in February that his tariffs could cause "some pain" to Americans. "The Trump put option may not be triggered is a big risk, that is, Trump may be prepared to sacrifice economic growth to achieve the goal of reducing spending, and/or may push tariffs to change the trade imbalance rather than just using tariffs as a negotiation strategy, even if these measures create huge macro and market headwinds." "Trump put option" is more suitable for bond investment?

Recently, some analysts believe that Trump's attention to the stock market may have given way to a high focus on the bond market.

This view was inspired by the remarks of senior Trump officials, including Treasury Secretary Becent and Special Employee Musk.

Muske said on X earlier this week that the promise to control the U.S. budget deficit helped boost bond demand, which triggered the view that the real "Trump put options" might apply to bonds rather than stocks. "If you're shorting your bonds, then I think you've made the wrong bet." Earlier in February, Becent said he was "focusing on" lowering the 10-year U.S. Treasury yield.

Drajo believes that it is too early to judge whether the recent decline in U.S. Treasury yields is an intentional result, and there may be many factors that have caused this result, including the increasing uncertainty of the development trajectory of the US economy and labor market.

Drajo said: "It is not possible to think about it yetThe trends in the bond market over the past few weeks are a reflection of the ‘Trump put options’. ”

In addition, Delajo also expressed doubts about the view that "Trump delayed tariffs on Mexico, Canada and Canada due to weak stock market performance."

More likely, Trump made the decision to postpone tariffs because he successfully made Canada and Mexico concessions on the border.

Drajo said that if Trump really wanted to boost the market, the easiest way was through his comments on trade. Trump could also choose to increase federal spending, which Delajo also pointed out that increasing spending requires cooperation from Congress.

left;">Citi stock strategist Scott Chronert said he and his team did not predict the exercise price of the 'Trump put option', but if the S&P 500 fell to 5,500 points, the index would fall back to his estimated "fair value" range, which could attract investors to return to the market.

In the past two years, investors have been looking for opportunities to buy when stocks show signs of weakness, and a 10% decline could attract buyers to buy heavily without the "Trump put option" being triggered.