Senior officials from the U.S. and China met in Stockholm for over five hours on Monday. They discussed extending the current tariff pause for an additional 90 days. Key figures in the talks included U.S. Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng. The focus was on resolving trade and technology disputes, with China looking for relief from tariffs and restrictions on technology exports. Analysts believe that a potential summit between Trump and Xi could help reduce tensions, with an August 12 deadline to finalize a long-term agreement. There were preliminary deals made in May and June, but after Monday’s discussions, no public statements were released.

Ninety Day Extension

A 90-day extension of the truce, first agreed upon in mid-May, is expected to stop any further increase in tariffs. This extension may also lead to a Trump-Xi summit in late October or early November, continuing the efforts to resolve ongoing disputes between the two countries. News over the weekend suggested that the U.S. and China would extend the tariff hold for another 90 days. Talks will continue on Tuesday, and the proposed extension aims to ease tensions ahead of the summit. The market has already factored in this extension, which likely means low implied volatility across major indices for now. The CBOE Volatility Index (VIX) is trading near 13.5, significantly below its historical average, indicating that traders are not expecting major disruptions from these talks. This situation makes buying call or put options relatively inexpensive while offering chances for those selling premium.

Trading Strategies and Risks

We see opportunities in strategies that benefit from this expected calm, such as selling short-dated iron condors or credit spreads on the S&P 500. The goal is to take advantage of the market’s calmness before the August 12 deadline. Historical data from the 2018-2019 trade war shows that times of negotiation after a truce usually lead to steady markets and a gradual decline in option premiums. The main risk here is a sudden breakdown in negotiations, which would cause volatility to spike sharply. For example, the VIX soared over 40% in early May 2019 when talks unexpectedly fell apart. To protect against this risk, we recommend holding a few long-shot, out-of-the-money puts on technology or semiconductor ETFs, as these areas are most affected by potential negative outcomes. A negative comment from either Bessent or Lifeng could trigger a quick market reaction. Recent economic reports, such as China’s lower-than-expected July exports, which fell 1.2% year-over-year, indicate that Beijing is under pressure to ensure market access and prevent further tariffs. This supports our belief that an extension of the truce is the most likely outcome. Therefore, the best strategy is to prepare for ongoing stability while keeping an affordable hedge against unlikely negative surprises. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now