Donald Trump has indicated a willingness to negotiate on tariffs. He mentioned plans to announce new pharmaceutical tariffs in the near future.
These developments come amidst ongoing discussions around trade policies. Specific details regarding the potential changes remain unclear at this stage.
Tariff threats and market reactions
Trump signalled that he may be open to cutting a deal on tariffs. At the same time, he also floated the idea of unveiling additional duties linked to the pharmaceutical sector. That, in itself, sets a peculiar tone. On the one hand, there’s a gesture toward compromise. On the other, a threat of further trade friction. The timing of that contrast matters, especially for those of us tracking volatility in derivative markets.
So far, no firm outline of what any tariff changes might look like has been offered. But the implication is there. A new round of import duties—even if targeted narrowly at drugs—could trigger fresh shifts in expectation across broader sectors, particularly healthcare and manufacturing. And when expectations move, premiums on options do as well.
Tariff talk tends to bleed over into other parts of the market. Even when not directly tied to the S&P or Dow industrial components, these kinds of statements can shape risk sentiment, driving hedging behaviours far beyond the specific sector mentioned. Recent volumes in short-dated options suggest that some traders have started preparing for abrupt moves. It would not be surprising to see that trend accelerate.
Markets typically respond more to forward guidance than to volume of trade alone. While Trump teases negotiation, his tone remains unpredictable. If fresh tariffs appear next week or the week after, and they’re more extensive than expected, that will catch some participants off guard. Price movements in the VIX would likely follow. Spreads on equity index options may widen. That volatility gives opportunity—but not without risk.
Signs of positioning and sentiment shift
What we should do is watch implied volatility in pharma names first. Then keep half an eye on large-cap benchmarks. There’s a lag, but not much of one. If short interest rises in health-related ETFs, the market may be bracing for something sharper.
Most telling is the split between those hedging early and those sitting back. That divergence gives clues. We’ve noticed an increase in deep out-the-money put contracts paired with modest near-the-money positions. That structure often hints at a defensive posture with room for reversal.
Derivatives pricing over the next two weeks will probably hinge not only on what is said, but how it is said. Pace matters. If tariff announcements come gradually, we’re looking at slower reaction times. One sharp declaration, though, and gamma picks up fast. From there it becomes about managing delta exposures against whatever news drops next.
Powell, for instance, is staying quiet for now—but any tone shift from Washington on foreign policy would feed straight into rate expectations. Watch for that too. It’s all connected.
