Report Date: July 31, 2025
July 2025 was the month the market decided to ignore everything that should have mattered. Tariff uncertainty? Priced out. Earnings season starting? No problem. VIX dropping to 15? Totally normal. The S&P 500 closed at record highs five days in a row, the longest streak in over a year, while the options market sent increasingly mixed signals about what was really happening beneath the surface.
If you’ve been trading long enough, you recognize this setup. It’s not the calm before the storm, exactly. It’s more like that moment when everyone at the party is having too much fun and nobody’s noticed the host has stopped refilling the drinks.
The Big Picture: Euphoria Meets Uncertainty
July delivered a 2.17% gain for the S&P 500, following June’s impressive 4.96% rally. Year-to-date returns stood at a healthy 7.93%, and the market narrative was simple: trade deals are getting done, earnings are beating, the Fed will cut in September. What could go wrong?
But the options market was telling a different story, or more accurately, several different stories depending on where you looked. Near-term options priced in almost no risk. Longer-dated options showed increasing caution. Individual stock options on the Mag 7 were trading at elevated implied volatility while index options were subdued.
This disconnect between calm and concern is what defined July.
Volume Dynamics: The Mag 7 Domination
Here’s a stat that should get your attention: Mag 7 options represented about 25% of single stock option volume daily, that’s 8 million contracts per day, equating to roughly $5 billion in premium traded. Every. Single. Day.
Think about that. One-quarter of all single stock options trading was concentrated in just seven names. When you have that level of concentration, the tail starts wagging the dog. These weren’t small retail trades, this was serious institutional positioning ahead of the earnings gauntlet that would hit at month-end.
0DTE trading: Remained popular but showed an interesting shift. More traders were using 0DTE as a hedge rather than a directional bet. We saw increased use of same-day strangles and iron condors, betting on calm, not movement.
Weekly options: Steady volume, but implied volatility compression continued. Unless you expected a major catalyst, buying weekly premium in July was a losing proposition.
Earnings-dated options: This is where the action really was. Options expiring immediately after Mag 7 earnings showed elevated IV compared to standard monthlies. The market was clearly pricing in event risk, even if index-level volatility remained muted.
The VIX Story: From Calm to… Calmer
The VIX spent July in a downtrend, falling to 14.93 by month-end and briefly touching as low as 14.27 on July 22nd. To put this in perspective, the long-run average VIX is 19.5. At 14, we were pricing in a level of certainty that historically precedes regret.
But here’s what made July interesting: the VIX started the month around 17-18 (still low, but not crazy low) and compressed throughout the month despite several potential catalysts that should have kept it elevated:
1. The August 1st tariff deadline: All month, the market knew that major tariffs could kick in if trade deals weren’t finalized. The EU faced a potential 30% tariff, and negotiations were described as “going nowhere” at various points.
2. Mag 7 earnings starting July 23rd: GOOGL and TSLA reported on the 23rd, followed by META, MSFT, AAPL, and AMZN the following week. Historically, the VIX doesn’t compress into major earnings clusters, it expands.
3. Economic data uncertainty: Jobs numbers, inflation prints, and Fed positioning all remained somewhat ambiguous.
Yet the VIX fell anyway. Why? Because every potential crisis resolved just enough to keep the rally going. Trump announced an EU trade deal on July 27th with a 15% tariff instead of the threatened 30%. Early earnings came in strong. The Fed signaled clarity about September cuts.
The market got what it wanted: just enough good news to justify continued euphoria, but not so much clarity that there was nothing left to price in.
The Term Structure Warning
While the VIX itself was low, the term structure told a more nuanced story. August VIX futures were trading around 17.4, meaningfully higher than spot VIX at 14.93. That 2.5-point gap (the term structure premium) was significant.
When VIX futures trade above spot VIX, it means professional volatility traders think current calm is temporary. They’re willing to pay a premium to own volatility exposure in the future because they don’t trust the present tranquility.
This is exactly what happened in July. Retail was selling near-term premium and celebrating low volatility. Institutional traders were quietly building longer-dated volatility positions.
The Tariff Tango: From Panic to Progress
July’s narrative arc on tariffs went something like this:
Early July: Anxiety building. The July 9th deadline for major trading partners to finalize deals was looming. VIX was elevated in low 20s, and options traders were positioning for volatility.
Mid-July: Mixed signals. Some deals got done (Indonesia, Philippines, Japan), but the big ones (EU, India) remained unresolved. Markets chopped around, unsure how to price the outcome.
July 27th: Trump announces EU trade deal with 15% tariff instead of the threatened 30% (or even 50% mentioned at various points). Market rallies hard on the relief.
The options market’s response to this progression was fascinating. Early in the month, we saw heavy put buying in export-heavy sectors and European ADRs. By mid-month, that positioning started getting unwound as deals trickled in. By month-end, traders were net selling puts and buying calls, the classic “crisis averted, time to chase” pattern.
What the smart money did: They sold volatility into the tariff scares (when VIX spiked above 20 early month) and bought it back when it cratered below 15. They didn’t predict whether deals would get done, they just bet that the volatility spike was temporary and would mean-revert.
Earnings Season: The Setup and the Signals
July ended with the most important earnings week of the year about to drop. Let’s talk about what the options market was pricing in and what actually happened.
Pre-Earnings Options Positioning
Alphabet (GOOGL) & Tesla (TSLA) – July 23rd:
- GOOGL options priced in about a 5-6% move, slightly below historical average
- TSLA options priced in a massive 10-12% move, Tesla never disappoints when it comes to volatility
- Both names showed heavy two-sided flow: lots of calls, lots of puts, minimal net directional bias
Meta, Microsoft, Apple, Amazon – July 30-31st: The real money was here. Options volumes on these four names in the week leading up to earnings were absolutely monstrous:
Microsoft (MSFT):
- Options pricing in 6-7% move
- Heavy call accumulation in August/September expirations
- Skew relatively neutral, market wasn’t scared, just uncertain about magnitude
Meta (META):
- Options pricing in 7-8% move
- Most interesting positioning: lots of call spreads rather than naked calls
- Suggested institutional expectation of a positive but contained reaction
Apple (AAPL):
- Options pricing in 4-5% move (smallest of the group)
- AAPL had been a laggard, and options reflected low expectations
- Put skew slightly elevated, more protection being bought than usual
Amazon (AMZN):
- Options pricing in 6-7% move
- Notable: heavy flow in longer-dated calls (September/October)
- Market positioning for AWS strength and AI infrastructure story to continue
The Common Thread
Across all these names, one pattern emerged: traders were buying shorter-dated options for the immediate earnings reaction, but also accumulating longer-dated calls for continued upside. This dual positioning suggested people wanted to capture the earnings pop but also believed the bull market had legs beyond the quarterly reports.
The options volumes were incredible, $5 billion per day in just these seven names. To put that in context, that’s more premium than trades in most entire sectors.
Sector Rotation: What the Options Flow Revealed
Technology: The Only Game in Town
Tech options dominated July in a way we haven’t seen in years. It wasn’t just the Mag 7, semiconductor names, software companies, and cloud infrastructure plays all saw elevated options activity.
Semiconductors: Despite concerns about AI spending sustainability, semi options showed steady call buying. Traders were betting the AI build-out has years to run, not quarters.
Software: Enterprise software names saw increased activity, particularly in companies with AI integration stories. SaaS multiples were compressing, but options traders were betting on earnings beats providing temporary relief.
Financials: Quietly Resilient
Bank options showed something interesting: very little activity, but what activity existed was constructive. Small amounts of call buying, minimal put hedging. The sector was boring, which in July was actually a positive signal.
Higher-for-longer rates continued to benefit big banks’ net interest margins, and options traders weren’t worried about credit quality deteriorating. The absence of fear was the signal.
Industrials: The Tariff Trade
This sector saw the most interesting options flow related to tariff uncertainty. Early in July, we saw heavy put buying in companies with significant European or Chinese exposure. As trade deals progressed, those puts got sold and calls were accumulated.
The whipsaw in industrial options pricing was dramatic, IVs spiked 30-40% early month, then crushed back to baseline by month-end.
Healthcare: The Forgotten Sector (Still)
Healthcare continued its year-long underperformance, and options activity remained muted. When a sector can’t even generate options interest, that’s usually a sign smart money has moved on entirely.
The one exception: healthcare insurance options saw some positioning around potential policy changes, but volume was thin.
Put/Call Ratios: The Divergence That Mattered
Here’s where July got really interesting from a sentiment perspective:
Index put/call ratios: Declined throughout the month. By late July, we were seeing 0.65-0.75 readings, low levels that suggest traders weren’t buying much protection. Complacency was building.
Individual stock put/call ratios (especially Mag 7): Remained elevated around 0.85-1.0. Despite the index-level calm, people were hedging individual names aggressively.
This divergence is important. It suggests professional traders were comfortable with the market’s direction but worried about stock-specific risk. They weren’t afraid of a market crash, but they were concerned about individual disappointments.
Think about it: if AAPL, MSFT, or AMZN missed and dropped 10%, it would take the whole market down given their index weightings. So the smart play was to stay long the index but hedge the individual names.
This is exactly what the options flow showed in late July.
The Trade Deal Relief Rally: How Options Captured It
When Trump announced the EU trade deal on July 27th, the market had its best day in weeks. The S&P 500 surged, tech led, and the VIX dropped below 15.
But the options market had already started moving in advance. Here’s the sequence:
July 24-26: Unusual call buying in European-exposed names and financials July 27 (pre-announcement): Accelerated unwinding of put hedges July 27 (post-announcement): Mass put selling and call buying, FOMO in real-time
The smart traders caught this move by watching the options flow. When you see large institutions start unwinding put protection before an announcement, they usually know something. Or at least they know enough to position for the most likely outcome.
By the time the deal was announced, much of the move was already priced in via options positioning.
Interest Rate Options: The Hidden Story
One area that didn’t get enough attention: interest rate options showed heavy positioning for Fed cuts. Treasury options (particularly SOFR options) were pricing in extremely high probability of September rate cuts, with decent odds of November cuts too.
This matters for equity options because lower rates typically compress volatility. When professional traders knew rates were coming down, they sold equity vol in anticipation. This contributed to the VIX compression we saw throughout July.
The cross-asset positioning was clear: long rate cuts, short equity vol, long equity upside. That’s the “soft landing” trade in a nutshell, and July’s options market was entirely positioned for it.
Commodities and Crypto: Sideshow Action
Gold options: Showed some defensive positioning early month but quieted down as risk assets rallied. GLD options volumes were moderate, nothing like the surge we’d see in August.
Oil options: Elevated due to Middle East tensions, but not enough to spill over into broader market concern. WTI options showed heavy two-sided flow, lots of hedging, minimal directional conviction.
Bitcoin: Options showed increasing correlation with tech stocks. When Nasdaq rallied, Bitcoin options traders bought calls. When Nasdaq dipped, Bitcoin vol spiked. The asset was increasingly trading like a high-beta tech stock rather than a unique asset class.
What Worked, What Didn’t
Strategies that printed in July:
- Selling near-term puts into tariff scares, buying them back after relief rallies
- Long calls on Mag 7 names into earnings (for those willing to pay elevated IV)
- Calendar spreads (short front month, long back month) as term structure was consistently upward sloping
- Iron condors on individual names outside the Mag 7 (low realized vol made these profitable)
Strategies that struggled:
- Buying index puts as hedges (VIX kept compressing, premium decay was brutal)
- Long volatility positions (timing was critical; too early and you bled theta)
- Naked call selling on momentum names (NVDA, META, etc.), these kept grinding higher
- Betting on mean reversion in breadth indicators
The month rewarded optimism and punished caution. Range-bound trading strategies worked on some names, but trend-following worked better on the indices.
The Breadth Divergence: A Signal in the Noise
While the S&P 500 made new highs in July, market breadth was deteriorating. The equal-weight S&P 500 underperformed, small caps struggled, and only three of the Mag 7 were actually above their 2024 highs (NVDA, META, MSFT).
Options traders noticed. We saw:
- Declining call volumes in small-cap names
- Reduced interest in Russell 2000 (RUT) options
- Concentration of volume in fewer and fewer names
When breadth narrows like this, the options market eventually starts pricing in more risk. We didn’t quite get there in July, VIX remained low, but the seeds were being planted.
Looking Ahead: What July Set Up for August
July ended with a peculiar setup:
- Record high stock prices
- Near-record low volatility
- Massive concentration in Mag 7 positioning
- Tariff uncertainty temporarily resolved (but with Aug 1 deadline still looming for some countries)
- Fed cuts priced in with high confidence
- Peak earnings season coming to a close
The options market was essentially saying: “We’re optimistic, but we’re not stupid.” Near-term calm prevailed, but longer-dated positioning showed caution. Traders were comfortable owning upside exposure, but they were also quietly building protection for what might come after the euphoria faded.
The specific catalysts to watch in August:
- How Mag 7 earnings actually came in (reporting was happening as July ended)
- Whether the August 1st tariff extension held or if new conflicts emerged
- Jobs reports and whether the labor market continued softening
- Whether the VIX staying below 15 was sustainable or a coiled spring
Lessons from July 2025
For options buyers: July was a tough month to buy premium profitably. Unless you nailed specific earnings plays or tariff-related swings, theta decay ate your lunch. The lesson: in low-vol environments, be very selective about paying for optionality.
For options sellers: A premium seller’s paradise, but the smart ones weren’t getting greedy. Selling near-term premium worked great, but accumulating too much short gamma into month-end with Mag 7 earnings dropping was dangerous. The lesson: take profits when premium collapses, don’t chase the last dollar.
For portfolio managers: The divergence between index calm and stock-specific hedging was the key insight. You could stay long the market while hedging individual names, and that combination worked perfectly. The lesson: when the market is this concentrated, hedge the names that matter, not the index.
Final Thoughts
July 2025 will be remembered as the month the market climbed a wall of worry and reached the top, only to look around and realize there wasn’t much view up there.
Everything that should have caused volatility either resolved just enough (tariffs) or got postponed (recession concerns). The market got the best-case scenario: clarity without consequence, progress without pain.
The VIX at 15 told us traders believed this would continue. The term structure told us professional volatility traders weren’t so sure. The concentration in Mag 7 options told us the market was betting everything on a few horses.
When you see that combination, widespread calm, concentrated positioning, and smart money building longer-dated protection, you’re usually in the late innings of something. Not necessarily the end, but definitely late.
July gave us the rally. August would show us whether we could keep it.
Data sources: CBOE market statistics, public market data, and aggregate volume reports. This report is for educational purposes and does not constitute investment advice. Options trading involves substantial risk and is not suitable for all investors.