Jul. 14th, 2025 Option Outlook

Tariff or TACO?

Good Morning! Tariff threats on Canada caused a modest selloff of .3% in SPX.

Financial news has attributed the lack of selloff to the TACO trade, the market assuming Trump is going to submit to a market selloff. The one thing I’m not reading is the market thinking the impacts of tariffs will be minimal. It is universally believed that tariffs will have a major impact on the economy, mostly negative. Tariff revenues are at record highs already, but I don’t know how much companies are going to absorb going forward.

Readers of these notes however know the option outlook, where 6200 has been very strong support and 6300 has been strong resistance since July began. But now July opex is approaching, what will change?

The first thing I want to note is that every day this week, we are going to see a strong positive presence at 6300. It will be a positive force until Friday morning. However, once July opex is over, that positive force will have to be sustained on 1-2DTE timeframes. Another thing to see is the green charm levels right next to the price. These levels are premium sellers, which is hedged by gamma scalping. That means moves are going to be more volatile around those strikes.

This week there is going to be an ironic battle. We are looking very supportive for a bounce to the 6275-6280 area.

The irony is that if the market resists that pull, and cannot get to 6275-6280 when July opex closes, August vanna is neutral, which is not a good look for bullishness. Throw in the August 1 deadline for these tariff discussions, and you have a recipe for a more substantial selloff. Again, 6200 is the end of support, when we find ourselves in a similar situation as last month before the ceasefire. If that happens, it would be a good situation to go long gamma in both directions. August will be a tougher read than this month, so please be nimble.