If someone told me a year ago that in 2022, the dollar in my pocket would be worth 8.5% less…Well, to be honest, I wouldn’t be too surprised.We all saw what happened when the COVID-19 pandemic hit. Central banks around the world fired up their money printers.They mailed out four-figure checks to virtually every household in America and granted a ton of low-interest loans to struggling small businesses…And today, we see the result. High energy and food prices — not to mention housing, which has priced out an entire generation of homeowners.We’re not out of the woods yet, either. The forward-looking Producer Price Index (PPI), which tracks the cost of goods and services for producers, rose a record 11.2% this week. That suggests even WORSE inflation ahead.So I put it to our True Options Masters: What’s an everyday trader supposed to do with inflation?Should they put everything they have into the market to try to dodge it? Or is it time to buy the less-sexy, more-protective assets like gold and silver?In today’s Options Arena, you’ll get each of our Masters’ inflation battleplan…

There’s Not One “Perfect” Hedge — So Why Not Use Them All?

We need to dig into the history books for this one, because many of us haven’t seen sustained inflation during our adult lives. In some ways, this lack of experience is beneficial.I’m not biased from sitting in long lines at gas stations like my mother did. I can analyze the data with an open mind.As I looked at gold, silver, oil, and other hard assets with good reputations, I saw that different hedges worked at different times. That tells me there’s not one “perfect” hedge against inflation. The best way to protect your portfolio is with a basket of commodities. And I’ve found an ETF that makes it simple to hedge: Invesco DB Commodity Index Tracking Fund (DBC).This chart shows that DBC generally moves in the same direction as the Consumer Price Index. Mathematically, the correlation is about 60% on average. That’s a high correlation for trading purposes.

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DBC holds futures contracts which complicates tax filing. That’s why I recommend options on ETFs like this.Longer-term at the money calls are the trade right now. The January 2023 $29 calls are attractive. If inflation turns down, you can always trade put options to profit. But I don’t think we’ll look at puts for some time…

Chris: The Fed’s Too Late. But You Can Profit Off Volatility

Inflation itself isn’t bad for stocks. It’s the response to inflation that is.At this point the Fed can’t raise rates fast enough to cool inflation.Even if they attempted to, it would compromise the housing market. Homebuyers can’t buy expensive homes if rates are too high.The Fed doesn’t want to create a real estate crash.So they’re stuck, and markets know it.The uncertainty will create volatility. But the silver lining is items like gas and oil are what mostly contributed to inflation numbers last month. Other items aren’t rising as fast. This could be a sign of peak inflation.Stocks have lost half their gains from the March low. This is a key inflection point. Next week, stocks either rise big or fall big.If you want to profit regardless, I suggest subscribing to One Trade. Mike Carr’s made a killing on the recent volatility, and it’s sure to continue.

Mike: The Little-Known Inflation Hedge You Need in Your Portfolio

Inflation is certainly a problem right now. But will it continue to be a problem in the coming years?Economists believe the answer to that question lies in inflation expectations. In other words, if consumers expect inflation to increase, they behave in ways that make inflation increase. The opposite is also true — believing inflation will fall drives inflation down.So it’s consumer sentiment that affects inflation. The Federal Reserve conducts a survey to track that. According to the most recent survey, consumers expect inflation over the next year to be 6.6%. But they expect it to decline after that and average just 3.8% over the next three years.I think expectations are too low and will rise in the coming months. Inflation isn’t going away. Prices are rising while the amount of product in packages gets smaller as companies practice “shrinkflation” to keep prices down. As consumer frustrations mount, expectations will rise.There’s a trade to play consumer sentiment: the ProShares Inflation Expectations ETF (RINF). It’s small with less than $45 million in assets, so there are no options available. But this is the ideal inflation hedge and belongs in every portfolio right now.

Chad: I Couldn’t Care Less About Inflation

The Federal Reserve has historically always been behind the curve. Raising rates too late to offset the growth. There’s no reason to believe it’s any different this time.Inflation is already here and the Fed is stuck with a target rate of just half a percent. The Fed has many more rate hikes to go before it begins to put a dent in the inflation equation.This has all the right ingredients for the next big market crash… One that sends markets down over 50% in true bear market fashion. A decline that takes years to complete instead of the “V” recovery we saw from the pandemic.It’s coming. But it’s not here yet.It may be fun to play “what if” and try to predict when this crash will come…But truthfully, none of it matters to me.I don’t care what happens with inflation, because I trade both sides of the market.By using technical analysis, we can stay ahead of the curve. We’ll have bearish opportunities in bear markets, and bullish trade setups in bull markets.Regardless of the market environment, we’ll find the best trades available to keep making money.

What do you think? Is consumer sentiment the real driving force behind inflation? Is a basket of commodities better than one hedge? Does inflation even matter for options traders?Let us know by voting in the poll below!

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As always, we’ll be back in your inbox with some Big Money moves tomorrow morning.

Until then,

Mike MersonManaging Editor, True Options Masters