Negotiations between the United States and India on trade issues are still ongoing. Donald Trump is optimistic about reaching a successful agreement with Prime Minister Modi. At the same time, Trump has urged the European Union to impose 100% tariffs on India and China. He believes this will pressure Putin, based on earlier reports.

Market Uncertainty Amidst Conflicting Signals

We are seeing mixed signals that create uncertainty in the market, affecting options pricing. The positive tone from ongoing discussions is countered by the threat of heavy tariffs, suggesting that volatility in Indian assets is likely. Traders should pay less attention to trends and more to the size of price movements. This situation indicates that we should prepare for increased volatility. The India VIX, a popular measure of market fear, has already risen 4% to 19.2 in overnight trading, and we expect it might reach the highs of around 25 we saw earlier this year. This echoes the trade disputes from 2018-2019, where buying options straddles on the Nifty 50 index was profitable, regardless of how policies turned out. The Indian Rupee is also important for trading strategies. The implied volatility on one-month USD/INR options has spiked to 9%, up from the quarterly average of 6.5%, as the market anticipates a wider trading range. We should think about taking long positions on USD calls to protect against or speculate on a weaker rupee if tariffs gain more attention.

Sector Vulnerability and EU Involvement

We also need to look at certain sectors that heavily rely on exports to the United States and Europe. Indian IT and pharmaceutical companies, which make up nearly 60% of India’s exports to the US, are especially at risk. Buying protective put options on key companies in the Nifty IT index could be a smart move in the near future. The push for EU involvement adds another layer, which may also affect European stocks. We saw that trade tensions between the US and Europe in 2022 led to sharp changes in German auto and industrial shares. Therefore, traders might consider buying puts on European index ETFs as a hedge against broader global trade issues. Create your live VT Markets account and start trading now.

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