In the lead-up to Trump’s big tariff thing—July 9, right?—investors seemed shockingly chill. Like, no sweat whatsoever. Oddly enough, this reminds me of Liberation Day, sort of.
So, the MSCI All-Country World Index hit some high mark last week. Who would’ve thought? But wait—volatility expectations from everywhere, US to Europe, and even Hong Kong, dropped more than half since April. Crazy, right?
And hedge funds are going nuts. Guess what? They’re buying US financials like it’s 2010 or something, according to Goldman Sachs data. Large speculators ditched the whole “covering shorts” strategy and joined the rally. I think Michalis Onisiforou from Banco Bilbao mentioned that? Yeah, he did.
He said something about “lingering pessimism leaving many in the dust.” Such a picture! I guess ever since April’s Liberation Day chaos, investors kind of toughened up. They’ve been through tariffs, the Middle East clash, and still holding strong. Plus, tech’s been booming, and unemployment numbers surprised everyone. The S&P 500 reached new highs on Thursday, and Asia and Europe were like, “We’re good,” even after Trump threw another tariff bomb. Up to 70%, can you imagine?
Anyway—or should I say, back to the main point? The options market seemed super relaxed last week. Benedicte Lowe from BNP Paribas said traders expected only small shifts for the Euro Stoxx 50 come the tariff deadline. Gotta love those long gamma trades! They’re like the new trend, especially with the steepening volatility curve.
Back in April, gamma trades were a gold mine after Liberation Day—volatility was off the charts. Bank of America was all about buying “cheap gamma” on Germany’s DAX back then. Now, they’re eyeing the Euro Stoxx 50, feeling reminiscent maybe? But Benedicte doesn’t think it’ll be as juicy this time.
Some folks say cross-market volatility plays could work, given Trump’s wild ride. But trading options like that isn’t what it used to be. The structured product flows dried up, leaving these spreads in the dust. Changing tariff news doesn’t help anyone navigate this maze, trust me.
Oh, shoutout to Bernard Goyder and Natalia Kniazhevich for their help too. Life in the finance world keeps spinning, huh?
