Trade talks between the US and China happened this past weekend in Madrid. The meeting is over, but details haven’t been shared yet. An update about the talks was posted on TikTok, and we expect more insights soon.

Market Expectations

With the talks now finished and no news released, we can expect market volatility to increase significantly. This week, the CBOE Volatility Index (VIX) rose to 19 in anticipation. Derivative markets are also predicting wider price swings in the weeks ahead. Due to this uncertainty, traders should think about buying options to protect their investments or speculate on big market movements. We’ve seen similar situations before, especially during the trade negotiations between 2018 and 2020. Back then, markets reacted strongly to headlines and rumors, often punishing those who made large bets before any official news. History shows that even good news can lead to sell-offs as traders assess the details, making quick bullish moves risky. Traders should focus on options for sector-specific ETFs that react strongly to US-China relations, like those covering semiconductors and Chinese tech stocks. For instance, the implied volatility for options on the FXI, the China large-cap ETF, is currently high, indicating that traders are preparing for a big move. Strategies like straddles or strangles could be better bets, allowing traders to profit from sharp price changes in either direction instead of guessing the outcome.

Options Trading Considerations

The broader economic situation adds complexity, as this isn’t just about trade talks. The latest US inflation report for August 2025 showed a slightly higher rate of 3.1%, which limits the Federal Reserve’s ability to support the market if news from the talks is negative. Meanwhile, China’s recent industrial production grew only 3.5%, which is weaker than expected, signaling that they also hope for a positive outcome from the talks. For now, the smart approach is to use derivatives to manage risk instead of making outright bets. This means favoring long premium strategies where the maximum loss is clear from the start. The immediate focus should be on getting through the initial news release, which could happen anytime and likely outside of market hours. Create your live VT Markets account and start trading now.

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