Traders have started hedging against the 'TACO' dynamic, short for "Trump Always Chickens Out," using a specific options strategy. Since roughly the midpoint of last week, put spreads with a $1 strike width totaling approximately 400 million barrels have been traded, as President Donald Trump shifted his stance on matters like possible military action in Iran and levies on ships transiting the Strait of Hormuz.
The same approach was used in a large options trade back in mid-May, when puts covering 134 million barrels of Brent crude were exchanged in a single $91/$90 spread. That purchaser could have profited up to $129 million if July Brent futures had ended around $91 by the options' expiry the following week. The price did eventually hit that level, but a few days after expiration, causing the trader to miss out on a huge payout.
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The TACO concept, an acronym that traders say means "Trump Always Chickens Out," began circulating last year as market participants grew accustomed to the US president's tendency to reverse course abruptly. Just this week, Trump declared a 20% levy on cargo moving through the crucial energy strait, then withdrew the threat within 24 hours.
A sudden collapse of a truce between the US and Iran dashed expectations that a mid-June easing of tensions would allow normal shipping traffic through Hormuz. Since then, oil prices have jumped to their highest in about a month, with conflicts erupting across the Middle East, including strikes on oil-carrying ships and on Gulf states such as Kuwait.
The backdrop of these trades includes a broader escalation in the region: attacks on tankers near the Strait of Hormuz have raised fears of supply disruptions, while Iran's rhetoric against U.S. allies has kept traders on edge. The combination of tariff threats, broken ceasefires, and military posturing has made oil prices highly volatile, pushing implied volatility to multi-month highs. In this environment, the TACO strategy has become a staple for oil traders navigating the unpredictable landscape of Trump-era geopolitics.
The near-successful trade in mid-May, where 134 million barrels of put spreads almost paid off, demonstrated how quickly policy shifts can create profit opportunities. With the current mix of ceasefire breakdowns and tariff threats, traders are using both put and call spreads to hedge against sudden moves in either direction.
The bullish sentiment is evident as implied volatility and call skews for Brent and West Texas Intermediate have reached their highest levels since April, with traders buying protection against rising prices.
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