Talks between South Korean ministers and US officials were delayed because of a scheduling conflict with US Treasury Secretary Scott Bessent. However, a meeting is now scheduled for Friday to discuss a tariff agreement between the US and Japan. During these talks, South Korea presented a plan to the US Commerce Secretary that the US found intriguing. South Korea is seeking a deal similar to the one the US has with Japan, which could lead to tariff reductions in the 10-20% range.

Impact On Risk Assets

This potential deal could have a positive effect on risk assets, although much of the optimism is already reflected in current market prices. If the negotiations fail, South Korea might face a 25% tariff starting August 1, but there may be an extension if talks are nearing completion. We think the market has already considered the likely 10-20% tariff agreement, reducing the chance for large gains. The KOSPI index has stayed strong, close to the 2,800 level, indicating that investors are already optimistic. Thus, the best trading opportunity lies not in the expected outcome, but in preparing for surprises. With the August 1 deadline approaching, there is more downside risk if the discussions mentioned by Dellamotta do not succeed. A complete breakdown in negotiations would likely shock the market, causing the Korean Won to drop against the dollar and hurting export-reliant stocks. Traders might want to buy out-of-the-money put options on major Korean ETFs as a budget-friendly way to protect against a negative surprise after the meeting with Greer.

Betting On Market Volatility

A strong strategy is to bet on an increase in market volatility. The VKOSPI, South Korea’s volatility index, has recently been trading below 15, a level that is historically low, making options cheaper. We recommend using straddles or strangles, which can profit from significant market moves in either direction, to take advantage of the uncertainty leading up to the deadline. History from past US trade negotiations shows that final results often lead to sharp market reactions. South Korea’s vehicle exports to the US were valued at over $45 billion in 2023, so any news on tariffs will have an immediate impact on that key sector. We will be closely monitoring signals after the postponed meeting with Bessent. Create your live VT Markets account and start trading now.

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