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Kansas City Fed President Jeffrey Schmid stated that the ongoing high uncertainty is influenced by the tariff debate. High unpredictability continues to shape economic conditions, possibly affecting various markets.
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Schmid’s remarks serve as a timely reminder that movement in broad policy discussions—such as tariffs—can ripple through markets in ways far less predictable than analysts often account for. His view underscores how sensitive the current environment remains to external triggers, particularly those stemming from external trade discussions, which carry the weight of governmental unpredictability.
Volatility And Market Positioning
From our perspective, recent policy dialogues—especially those lacking resolution—continue to nourish a volatile backdrop. This doesn’t mean volatility will spike on any given day, but when it does move, it can do so swiftly. We’ve seen before how even small policy pronouncements have resulted in sudden adjustments in implied volatility metrics and forward-looking expectations priced into options markets.
For participants in futures and options, this means positioning needs to be more responsive than reactive. Binary expectations, such as assuming that tension on tariffs will either escalate or dissipate quickly, seem increasingly misguided. Rather, the current climate suggests staying nimble—light on directional exposure unless it’s hedged—and being more attuned to changes in tone rather than specific outcomes. Markets have become prone to enforcing sharp realignments on little actual progress, which implies that sentiment, rather than resolution, often triggers movement.
The possibility of hearing more hawkish or dovish tones from various policymakers may further amplify short-term swings, without necessarily pointing to long-term shifts. We’re seeing this tension between sentiment and data digestion play out daily. Sensible positioning will rely more on adaptive strategies than fixed views. Skew levels in index options, for instance, are telegraphing that many are leaning into hedges rather than outright bets, suggesting a lack of strong directional conviction.
One practical takeaway for us is that lasting directional trades may carry more downside than upside until there’s greater clarity. Instead, weekly rotation strategies or short-dated spread structures might offer more effective ways to manage exposure, especially when priced appropriately around known event risks. Even flat calendars used tactically can benefit when implied volatility is distorted by external rhetoric from policymakers.
That said, this isn’t a time to chase minor price movements under the assumption they’re beginning of something bigger. When you look at recent intraday reversals, they tell us plenty: there is participation, but conviction remains thin. People seem quick to exit positions at the first sign of invalidation, a pattern that rarely signals a trending environment.
With this lens, consider revisiting your risk models to prioritise flexibility. Avoid locking into trades that make broad assumptions about direction or timeline. The better approach—at least for now—is to allow the tape to lead as it may, and to focus on trades that pay when others are forced to adjust rapidly.
No setup is without risk, but short gamma exposure in this type of environment—especially around news clusters—has historically led to avoidable losses. Being long optionality, when priced modestly, may serve both as protection and as opportunity. And in a space where certainty has become increasingly scarce, those twin roles have rarely been more valuable.
