The United States and China are likely to extend their tariff pause for another three months. This decision is expected during trade discussions starting Monday in Stockholm. The current tariff pause was set to end on August 12. In this third round of talks, both countries plan to discuss major issues, such as the U.S. concerns about China’s excess industrial production, without expecting immediate solutions.

Chinese Delegation’s Focus

The Chinese delegation also plans to ask the U.S. trade team about tariffs related to fentanyl. They want to understand the thresholds the U.S. wants to establish in this area. With the expected three-month extension of the tariff pause, traders might consider selling near-term volatility. The CBOE Volatility Index (VIX) usually goes down during stable periods; for example, it often dipped below 15 during past trade negotiation breaks. This situation allows for strategies like selling short-dated straddles or iron condors on broad market indexes, as premium decay speeds up. However, the absence of immediate solutions to major issues suggests that uncertainty may return. This makes it wise to buy longer-dated volatility, such as options that expire beyond the new three-month extension. The ongoing concerns about industrial overcapacity could lead to a rise in volatility as the new deadline approaches.

Opportunities in Sector Specific Plays

There are opportunities in specific sectors, especially in technology and industrials, which are very sensitive to trade news. With U.S.-China trade exceeding $575 billion in 2023, even a temporary calm can slightly boost these stocks. Traders might use strategies like bull put spreads on semiconductor ETFs to take advantage of this short-term stability while managing their risk. The Chinese delegation’s interest in fentanyl-related tariffs adds a complex factor that could make future talks harder. This highlights the fragile nature of the core relationship, so any positive market response should be seen as temporary. We recommend keeping an eye on currency derivatives linked to the yuan, as its stability will be a key sign of market confidence in the truce amid pressure from the trade team. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now