MW After the TACO trade, here comes the 'Trump Collar.' Here's what that means for stocks.

By Jamie Chisholm

There's a new addition to the ever-expanding lexicon of Trump trades, says Nomura's McElligott

Early futures action on Monday indicates Wall Street will start the week on the back foot, as trade war concerns once again dominate the narrative.

This may come as no surprise to Charlie McElligott, strategist at Nomura.

Known for his colorful stream-of-consciousness notes examining derivatives, McElligott taps the ever-expanding lexicon of Trump trades to tout the 'Trump Collar' as a way to explain the latest market moves.

A collar, in option markets, is a strategy used to protect against significant losses, but which also limits potential profits. They tend to be used when a trader is generally optimistic about an asset they own for the long-term, but there's concern about short-term volatility in the market.

The trade is struck by buying an out-of-the money put option (the right to sell a security at a particular strike price within a given time period) and selling an out-of-the-money call option (the right to buy a security at a particular strike price within the same time period). Out of the money refers to when a call option strike price is above the current asset price and when a put option strike price is below the asset price.

McElligott argues that investors should think in terms of a collar when they consider a market that is kept in a range by U.S. President Donald Trump's tariff rhetoric. A market that seems to want to trundle higher, but which is regularly knocked back by Trump Social posts.

"You all know 'Art of the Deal' Trump...and over the past month+, the 'TACO' -kind...but what it all adds up to now is the de facto 'Trump Collar,' as the market retrains the reaction function in the 'Human VVIX' era," says McElligott in an email missive sent Friday.

Readers will by now be familiar with the TACO trade. The VVIX is a gauge that measures the volatility of the VIX volatility index, and McElligott is clearly laying the cause of market vacillations at the feet of Trump.

He presents the table below to illustrate just how much Trump, as "Status Quo Disruptor in Chief," as he calls the president, has been impacting markets.

McElligott says that late last week, when the S&P 500 SPX sat only a few percentage points shy of February's record high, the stock market was in the upper band of its range-trade because investors have come to terms with what the analyst calls the "Trump Collar reflexivity."

By this he means that traders are aware that a falling market, in response to harsh Trump trade talk, will then be lifted by Trump delivering more soothing trade comments.

But "Trump then becomes re-emboldened" and talks tough again, causing investors to sell call options to hedge against falls. We see this happening when the S&P 500 moves back toward the 6,000 level, according to McElligott.

Then in response to the "Human VVIX" downside scenario - as Trump again talks tough - the volatility of volatility re-expands, and U.S. dollar-assets trade lower again in unstable fashion. That once again "restrikes the Trump Put, as his 'pain threshold' is hit in financial markets" and they rally back "off the precipice," he said.

"Rinse, repeat," says McElligott.

He says that if a trader had bought S&P 500 futures five days after Trump delivered some of his fiery tariff rhetoric - the market had fallen in response - and sold S&P 500 futures five days after Trump pulled back from that earlier position - the market had then rallied - they would have made a 12% return.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is lower, and gold (GC00) is trading around $3.346 an ounce.

Oil prices (CL.1) are higher despite OPEC+ announcing another sharp production hike.

   Key asset performance                                                Last       5d     1m     YTD      1y 
   S&P 500                                                              5911.69    1.88%  3.96%  0.51%    12.02% 
   Nasdaq Composite                                                     19,113.77  2.01%  6.32%  -1.02%   14.21% 
   10-year Treasury                                                     4.447      -7.10  9.80   -12.90   5.20 
   Gold                                                                 3375       0.52%  0.94%  27.87%   42.33% 
   Oil                                                                  62.84      2.15%  9.80%  -12.56%  -15.09% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due on Monday include the S&P final U.S. manufacturing PMI for May at 9:45 a.m. Eastern, followed at 10:00 a.m. by the ISM manufacturing survey for May.

China has vowed to fight back over what it called "discriminatory restrictive measures" by the U.S. that it said are endangering an agreement hammered out between the two countries last month.

Shares of Cleveland-Cliffs $(CLF)$, Nucor $(NUE)$ and Steel Dynamics (STLD) are surging after U.S. President Donald Trump slapped 50% tariffs on steel imports.

The Federal Reserve will likely be able to lower interest rates this year, and recent data supports this outlook, Fed Governor Christopher Waller said.

Fed Chair Jerome Powell will make some opening remarks at 1:00 p.m. Ahead of him, Dallas Fed President Lorie Logan speaks at 10:15 a.m. and Chicago Fed President Austan Goolsbee speaks at 12:45 p.m.

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The chart

There's a lot of chatter about how rising Treasury yields may be damping demand for stocks. But as Goldman Sachs shows, it's not so much the height of yields that's the problem, but more the speed at which they rise.

Read: Here's why Goldman still sees 10% upside to the S&P 500, even with bond yields rising

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   GME     GameStop 
   PLTR    Palantir Technologies 
   BMGL    Basel Medical 
   AAPL    Apple 
   MLGO    MicroAlgo 
   AMC     AMC Entertainment 
   TSM     Taiwan Semiconductor Manufacturing 
   NIO     NIO 

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-Jamie Chisholm

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June 02, 2025 06:45 ET (10:45 GMT)

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