Grow Your Portfolio: Invest in AEP Utility Company
A Calm Before the Shift
Last week, I found myself explaining to a fellow trader why my focus had shifted from chasing the latest high-flying growth stock to quietly building positions in sectors that aren’t making daily headlines. It’s a conversation I’ve had before, usually when the market’s narrative seems deceptively simple: tech leads, indexes rise, everyone feels bullish. But beneath that surface optimism, subtle changes in data and policy begin to realign the playing field.
In times like these, defense is as important as offense. One of the most effective ways to protect gains—especially if you’re heavily exposed to tech—is through a QQQ put spread hedge. This approach helps safeguard capital during pullbacks without abandoning long-term positions. Here’s how to structure it:
- Assess Your Portfolio Exposure
Calculate your exposure to QQQ, which tracks the Nasdaq-100, including tech giants like Apple, Microsoft, and Nvidia. If 30% of your portfolio is tech-heavy, a 5%–10% pullback could erode significant value.
The current QQQ price (as of August 5, 2025) is approximately $500–$510 (based on recent trends near S&P 500 levels), making it a reference for strike selection.
- Choose Strike Prices and Expiration
Higher Strike (Buy Put): Select a strike slightly below or at the current price (e.g., $500) to profit if QQQ drops. This acts as your hedge.
Lower Strike (Sell Put): Choose a strike 5%–10% below (e.g., $475 or $450) to reduce the cost and define your risk.
Expiration: Opt for a 30–60 day expiration (e.g., September 19, 2025) to allow time for the pullback, balancing cost and flexibility.
- Calculate the Spread
Example: Buy a $500 put for $15 and sell a $475 put for $8.
Net Cost: $15 - $8 = $7 per share, or $700 per contract (100 shares).
Max Loss: Limited to the net cost ($700), incurred if QQQ stays above $500.
Max Gain: ($500 - $475 - $7) × 100 = $1,800, realized if QQQ falls to or below $475.
Breakeven: $500 - $7 = $493, the price QQQ must fall below to profit.
- Execute the Trade
Use a brokerage platform (e.g., TD Ameritrade, Fidelity) to place a “bear put spread” order.
Ensure sufficient capital (e.g., $700 + margin requirements) and monitor for early assignment risk on the short put.
- Monitor and Adjust
If QQQ drops (e.g., to $490), the spread gains value, offsetting portfolio losses. Close the position if the gain meets your target (e.g., 50% of max gain).
If the market stabilizes above $500, let the options expire worthless, limiting your loss to the premium paid.
Benefits and Risks
Benefits: Reduces hedging cost (vs. buying a single put), caps downside risk, and protects against a 5%–10% pullback.
Risks: Limited profit if the market crashes beyond 10%, and time decay erodes value if the pullback doesn’t occur. Tariffs or Fed actions could delay or amplify the move, requiring vigilance.
In the current climate—where tariffs are raising costs, employment data is softening, and inflation is trending near 3%—a structured hedge like this offers both flexibility and peace of mind. By selecting appropriate strikes and expirations, you can safeguard your portfolio while maintaining upside potential.
Recent Trade Review
This past week, we booked a standout overnight gain of 54% on JPMorgan (JPM). The setup was straightforward: strong earnings momentum in the banking sector, favorable macro tailwinds from rate cut expectations, and a tight technical base. Our entry targeted the post-earnings continuation, and the trade delivered exactly as the models projected. It’s a reminder that even in an uncertain market, precision setups—backed by disciplined execution—can produce high-probability wins.
We also saw notable success in our Nvidia (NVDA) trade, identified through our Dynamic Power Trader (DPT) service. The DPT model flagged NVDA as a long opportunity during last Wednesday’s live trading room session, aligning both technical signals and market momentum. The result was a clean, profitable move in one of the market’s most closely watched names. You can review the trade in detail by watching the recording here: Live Trading Room Recordings ».
This is where the major difference between our paid and free services becomes clear. With a paid subscription, you receive SMS trade alerts telling you exactly when to get in and when to get out—timely, actionable guidance that can make the difference between catching the bulk of a move or missing it entirely.
Current Trading Landscape
The market continues to trade within a well-defined range, with SPY resistance at $630–$640 and support at $580–$590. Our models suggest a sideways bias in the short term, even as the long-term trend remains under pressure. Beneath the surface, breadth is narrowing, leadership is concentrated in a handful of mega-cap names, and headline-driven volatility is testing investor conviction. This week’s market action reflected a tug-of-war between optimism for Fed rate cuts and mounting macro headwinds, from weakening labor data to tariff-driven inflation risk.
The tone shifted sharply on August 1 when the July nonfarm payrolls report showed just 73,000 jobs added, far below the 95,000 consensus. Prior months saw a downward revision of 258,000 jobs, while participation rates fell and average job growth slowed to roughly 35,000. This clear sign of labor market cooling immediately shifted expectations for monetary policy—the probability of a September rate cut surged to 84% from less than 40% a week earlier. Market participants now look to Jerome Powell’s Jackson Hole speech (Aug 21–23) for clarity on whether the Fed will deliver on those expectations.
The same day brought a major trade policy development: the implementation of a new global U.S. tariff structure. Effective August 7, imports from countries without trade agreements now face duties of 15%–20%, with some partners hit harder—35% on Canada, 39% on Switzerland, and 41% on India. According to Yale’s Budget Lab, the average effective U.S. tariff rate has jumped from 2.4% to 18.3%, its highest in decades. The EU, UK, and Japan negotiated concessions to soften the blow, but the measures have reignited inflation concerns, particularly for goods prices already pushing inflation toward 3%. Political instability compounded uncertainty as the weekend brought both the firing of the BLS Commissioner and the resignation of a Fed Governor.
Markets reacted swiftly to this one-two punch. On August 1, the S&P 500 fell 1.6%, its steepest decline since May, led by tech losses—Amazon slid 8%, and Apple also lagged. Two sessions later, on August 4, the indexes staged a rebound of more than 1% across the board as traders bet on rate cuts and bought into weakness. That optimism was short-lived; by week’s end, the S&P 500 closed near 6,309, a sign that investors remain unsettled as they weigh stimulus hopes against the realities of slower job growth and tariff-related inflation.
Earnings season continued to inject both fuel and caution into the market narrative. With roughly 40% of S&P 500 companies having reported, 82% have beaten analyst estimates, and aggregate EPS growth is tracking at 10.2%. Banks such as JPMorgan delivered robust results, and Nvidia’s approval to sell its H20 chip in China added to AI-driven enthusiasm. Still, forward guidance offered warning signs—Amazon lowered its profit outlook, citing rising labor and logistics costs, while UPS withheld guidance altogether. Investors are watching the upcoming earnings from AMD, Amgen (AMGN), and Super Micro Computer (SMCI) to gauge whether tech can continue carrying the broader market.
On the geopolitical front, a ceasefire between Israel and Iran held, driving oil down 12% last week and easing near-term inflation pressure, though tensions in the region persist. In the policy sphere, NASA’s cancellation of climate-monitoring satellite programs sparked debate over environmental monitoring and could have implications for the energy sector.
Despite major index gains, leadership is strikingly narrow. Five mega-cap stocks—NVDA, MSFT, META, TSM, and JPM—have added about $2.2 trillion in market capitalization this year. Growth stocks now trade at a 16% premium to historical valuations, while value stocks are at a 7% discount. That valuation gap, combined with inflationary trade policy and a weakening labor market, has spurred rotation into defensive, yield-generating sectors such as Utilities.
Treasury yields reflected the market’s shifting mood, with the 10-year oscillating between 3.6% and 4.8% before ending the week lower on softer jobs data. The VIX closed near 18, signaling heightened caution without outright fear. With a data-heavy week ahead—including Core CPI, PPI, retail sales, import prices, industrial production, and consumer sentiment—alongside multiple Fed speeches, traders are bracing for fresh catalysts that could either confirm the rate-cut narrative or force another test of SPY’s support zone.
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Sector Spotlight: Utilities (XLU)
When market leadership narrows to a small cluster of mega-cap growth names and valuations in that space push to historically rich levels, defensive sectors often emerge as the quiet beneficiaries. We are seeing exactly that dynamic play out now. Growth stocks are trading at a 16% premium to historical norms, value stocks are at a 7% discount, and much of the year’s $2.2 trillion in market-cap gains has been concentrated in just five companies. For investors looking to reduce concentration risk without abandoning equities entirely, Utilities offer an appealing pivot.
The Utilities Select Sector SPDR Fund (XLU) captures this defensive positioning. Utilities are often viewed as “bond proxies” thanks to their steady dividends and predictable earnings streams—attributes that gain importance when macro uncertainty rises. In the current environment, they offer multiple advantages: they are less sensitive to economic cycles, benefit from regulated revenue structures, and tend to hold their ground when volatility picks up.
Right now, that stability is more than just a comfort—it’s becoming a strategic allocation. Tariff-driven inflation is trending toward 3%, the labor market is cooling, and interest rates remain volatile. In this climate, sectors with dependable cash flows and yield support tend to attract capital, especially when cyclical sectors are at risk. Lower rate expectations from the Fed also stand to reduce borrowing costs for utility companies, enhancing their earnings outlook.
Technically, XLU has been outperforming relative to the S&P 500 over recent weeks, signaling quiet accumulation. With capital rotating away from richly valued growth and into yield-generating sectors, Utilities appear positioned to keep benefiting from the shift. In short, they offer a blend of stability, income, and relative strength—an uncommon combination when broader market momentum is dependent on such a narrow leadership group.
Trade of the Week: American Electric Power (AEP)
American Electric Power (AEP) stands out as a prime way to capture the current shift toward defensive positioning while still participating in market upside. As one of the largest regulated utilities in the country, AEP serves more than 5 million customers across 11 states, giving it significant scale, geographic diversification, and a highly predictable revenue base. Its operations are backed by long-term regulatory agreements, which help stabilize earnings even in periods of economic slowdown.
AEP also offers an attractive dividend yield, making it particularly appealing in a market where yield is increasingly scarce outside of fixed income. For income-focused investors, this adds a reliable stream of returns that can help offset portfolio volatility. The company’s ongoing investments in grid modernization and renewable energy integration also position it for long-term relevance, as the energy sector transitions toward cleaner infrastructure.
From a macro standpoint, AEP’s defensive qualities are amplified by the current economic climate. Rising tariffs are adding to goods inflation, labor market softness is signaling slower growth ahead, and corporate guidance from cyclical companies is beginning to soften. In this type of environment, stable, yield-oriented equities tend to attract capital from both retail and institutional investors. Lower expected interest rates from the Fed later this year would also reduce financing costs for AEP’s capital-intensive operations, boosting cash flow potential.
Technically, the stock is consolidating just above support at $89, forming a solid base after a period of choppy price action. This creates a favorable risk/reward profile, with upside potential toward $115 in the near term if sector strength persists. Our A.I.-driven models show a strong probability of follow-through once the stock clears minor overhead resistance levels, particularly if XLU continues to outperform the broader market.
In summary, AEP offers a rare combination of defensive stability, income generation, and technical opportunity. For traders, it provides a clear, well-defined setup with identifiable support and resistance. For long-term investors, it offers a core holding with resilience in challenging market conditions. Either way, it represents a way to stay positioned in equities while hedging against the very real macro risks facing the market in the months ahead.
This week, I’ll add American Electric Power (AEP) to my portfolio!
And one more thing! Our track record speaks for itself from the standpoint of a Winning Trades Percentage, Average Return Per Trade, and Net Gain. Just take a look:
The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 83.05% of all trades that I made, with an average profit of 38.67% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind and stands alone in the marketplace for superior trading advice, where our numbers and results speak for themselves.
As we move into the thick of Q3, now is the perfect time to reassess your trading strategy and take your portfolio to the next level. Visit our website at www.yellowtunnel.com to explore our range of services and select one as your default trading system. With the power of our AI-driven platform, YellowTunnel is designed to help you navigate the complexities of the market, refine your strategy, and drive profitability in 2025.
Whether you’re focused on real-time trade opportunities, advanced analysis, or developing a disciplined trading mindset, we’ve got the tools and insights to guide you. As the year unfolds, let's work together to make 2025 the most profitable year for your portfolio. But remember—successful investing starts with informed decisions. Always conduct thorough research and assess your risk tolerance before executing any trades.
Let’s make this year a transformative one for your financial growth!
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Wishing you a week filled with resilience, growth, and prosperous opportunities!