A Prudent Way to Buy the S&P 500 at a Discount
Here is one way I am putting money to work in the overall market when equities have a decent daily selloff.
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Investors can hardly be blamed for being reticent about putting new money into the market now, even with equities sporting lower entry points than when 2025 commenced.
New tariff policies seem to be "evolving" every few days and when/if new trade deals come out of this push, is a major unknown. China and the U.S., the two largest economies in the world, are engaged in a full-blown trade war. In recent weeks, major investment banks have been rapidly increasing their probabilities of a U.S. recession in 2025.
Meanwhile, the Federal Reserve is on hold while the European Central Bank continues to cut rates. Fed Chair Powell is likely to wait several months to assess the impacts on inflation from new tariffs. To be fair, inflation had already started to accelerate again in the fall.
That said, the jobs market appears more than solid at the moment. Corporations seem to be holding off on implementing wide-scale layoffs while they await how all of this shakes out. In addition, major new trade deals could spark a nice rally across the markets.
One of the ways I am prudently putting new money to work when equities have a decent daily selloff, is via covered call orders. I am targeting both individual stocks that sport reasonable valuations as well as a variety of index ETFs.
One of my most recent additions to my portfolio is the Invesco S&P 500 Equal Weight ETF RSP. Unlike the S&P 500, which is weighted by market cap, this ETF has equal allocations to all 500 members of the index. Therefore, it is much less reliant on the Magnificent Seven stocks, which drove the lion’s share of the gains during the stock market rallies in 2023 and 2024. Many of these names were significantly overvalued coming into 2025 thanks to those gains.
Even with the recent downturn in the markets, many stocks are hardly cheap by historical valuation metrics. After a recent decline, Apple AAPL is still trading north of 7.5 times revenues. This is at the upper end of the stock’s historical range over the past 15 years. Given the challenges currently with China, one of Apple’s key markets as well as a primary manufacturing hub for the company, that seems unwarranted.
Another victim of the growing trade wa within the Mag 7 is Nvidia NVDA. The AI juggernaut took a $5.5 billion write-down on inventory last week thanks to chip restrictions to China. The shares are now down 16% over the last month.
The RSP gets less of its overall revenues from overseas compared to the S&P 500. Given new tariff policies and increased currency fluctuations, that seems like a positive trait right now. In addition, the options against RSP are extremely liquid. The ETF also sports a current dividend yield of 1.73% compared to 1.36% for the S&P 500.
Here is how I am setting up a covered trade that allows me either to buy the overall market at significantly lower entry points or provides a decent yield if the market trades flat or slightly down over the option duration.
Option Strategy
Here is how one can initiate a position in RSP utilizing a covered call strategy. As a reminder, covered call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Selecting the December $155 call strikes, fashion a covered call order with a net debit in the $145.60 to $145.80 a share range (net stock price - option premium).
This strategy provides downside protection of more than 11% over the trade’s duration, which includes two quarterly dividend payouts of $0.83 a share. This strategy also provides return potential of 7.5%, including dividends, even if the ETF trades down 5% over the option duration.
At the time of publication, Jensen was long RSP.
