President Donald Trump’s tariff “liberation day” is almost here. Investors are bracing for the unknown, but options trades can offer a hint of what’s to come as far as the reaction in the stock market.
According to options data tracked by equity derivative strategists at JPMorgan, the S&P 500 is projected to move as much as 1.6% in response to the tariff announcement. The Nasdaq 100 and Rusell 2000 are set to move 1.8% and 2.1%, respectively.
Though a downside move of this size would bring the S&P 500 back to 2025 lows, there’s also room to doubt whether such a swing will occur.
“Implied moves across equity indices and US Treasuries are generally higher than what these assets have realized on recent tariff escalation announcement days,” the analysts wrote.
JPMorgan
President Donald Trump has pledged to unleash a flurry of reciprocal tariffs this Wednesday, targeting countries he considers to be unfair trading partners to the US. Markets have see-sawed ahead of the so-called “Liberation Day,” as investors try to gauge the severity of these tariffs.
Contradicting policy signals from the White House have not helped, and it remains unclear how lenient or draconian the tariffs will be.
Nervous investors have driven a sell-off since mid-February, with the rout continuing last week, taking the S&P 500 down 2.7% in the last full week of March.
But that same week, options trade tracked by Barclays suggested that US investors don’t have much to worry about. Long-dated volatility on materials stood at a multi-year discount, which would have made this a cheap buy if options traders were concerned about negative consequences.
“At current costs, puts on Materials would have provided a better ‘bang-for-the-buck’ against worst drawdown vs S&P in most of the past 24yrs,” analysts wrote last Tuesday.
Barclays
Instead, Barclays noted that options trading on the Euro Stoxx 50 index is seeing more action, with derivatives implying a 1.6% move on Wednesday.
“The greater event premium in SX5E options aligns with the greater vulnerability of European equities to tariff announcements, especially given the region’s strong outperformance,” the bank wrote in an updated note this week.
