Stock futures rise in early European trading, showing optimism about a temporary US-EU trade agreement
by VT Markets
/
Jul 28, 2025
European stocks are on the rise. Eurostoxx futures jumped by 1.2% in early trading, thanks to a US-EU trade deal that has eased market worries.
This agreement is seen as temporary, and European leaders are looking for better terms. Even so, a 15% baseline tariff is expected to stay the same. At the same time, US markets are positive, with S&P 500 futures up by 0.5%.
Market Opportunity
The current market strength presents a short-term chance to ride this positive wave. We think this is a good time to use short-dated call options on the Eurostoxx 50 index. This strategy lets us join in on the immediate rally while also managing our risk.
However, we need to keep in mind that this agreement is not permanent. The Euro Stoxx 50 Volatility Index (VSTOXX) has dropped below 17, suggesting less fear in the market. This might be a good opportunity to buy protection at a lower cost. The drop in implied volatility indicates that the market may be underestimating risks from possible future trade disputes.
Still, there’s caution regarding the economy. The latest Eurozone Manufacturing PMI is at 47.3, which means it’s still shrinking. With core inflation stubbornly high, the base for a steady rally looks weak. These factors show that the current market optimism is on shaky ground.
Strategic Hedging
Our strategy will be to protect any new positive positions. While we enjoy the current gains, we are also buying out-of-the-money puts that will expire next quarter. This acts as a budget-friendly insurance policy against a possible downturn when the initial excitement wears off.
We’ve seen similar patterns in the past, like during the temporary US-China trade pause in late 2018. That situation caused a quick market boost that eventually faded when the core issues remained unsolved, resulting in renewed volatility. We expect a similar trend might happen in the coming weeks.
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by VT Markets
Jul 28, 2025
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