U.S. stocks dropped sharply on October 10, 2025, after President Trump threatened to raise tariffs on Chinese goods. He made this announcement in response to new restrictions from Beijing on rare earth metals. The Dow Jones fell by 1.9%, the S&P 500 by 2.71%, and the Nasdaq by 3.56%. Before this news, the markets were stable. Trump indicated that a planned meeting with President Xi at APEC in South Korea might be canceled. Beijing’s new rules require foreign companies to get a license for products containing over 0.1% rare earth content, starting December 1.

Market Volatility Soars

Market volatility surged, with the VIX index climbing by 12.8%. Many investors turned to defensive ETFs and strategies like long-short investing to seek protection and new opportunities. The AGF U.S. Market Neutral Anti-Beta Fund increased by 2.6% last week, while the AdvisorShares Ranger Equity Bear ETF rose by 6.4%. The Simplify Managed Futures Strategy ETF went up by 1.2% last week, and the KFA Mount Lucas Managed Futures Index Strategy ETF grew by 0.8%. These ETFs have different yields and fees, providing various options for investors during these turbulent times. With the VIX, a gauge of market fear, jumping over 12% last Friday, we should prepare for continued high volatility in the weeks ahead. Historically, during the trade conflicts of 2019, the VIX frequently spiked above 20 and even reached 25 with similar tariff news. Buying call options on the VIX, or volatility-linked products like VXX, may be a smart way to profit from the rising uncertainty. Given the significant drop in the Nasdaq and S&P 500, it’s wise to protect our broader equity portfolios from additional declines. Acquiring put options on major index ETFs like SPY and QQQ for November or December expirations is a strategic hedging move. This acts as insurance against losses as we approach the December 1 start date for China’s new export rules.

Technology Sector Vulnerabilities

The technology sector is especially at risk, reflected in the Nasdaq’s 3.56% drop on October 10. We saw a similar trend in May 2019 when the semiconductor index (SOX) fell more than 16% in a month due to an unexpected tariff increase. Buying puts on semiconductor ETFs or shorting tech stocks that rely heavily on Chinese supply chains and rare earth metals seems like a sensible approach. On the other hand, China’s restrictions on rare earths create opportunities for non-Chinese producers. Since China controls about 90% of the world’s rare earth processing, companies like U.S.-based MP Materials could benefit from increased demand and higher values. Consider buying shares or call options in these companies to take advantage of the supply squeeze. We should also keep in mind how China has retaliated against U.S. trade before, often targeting agriculture. In the 2018 trade war, Chinese tariffs led to a more than 70% drop in U.S. soybean exports. Traders should exercise caution with agricultural commodities and might even think about shorting soybean futures if this pattern happens again. For those seeking simpler ways to navigate this situation, certain ETFs are tailored for this environment. The AdvisorShares Ranger Equity Bear ETF (HDGE) shorted the market and gained over 3% last Friday. Another option is the AGF U.S. Market Neutral Anti-Beta Fund (BTAL), which rises when high-beta stocks fall, providing alternative portfolio protection. Create your live VT Markets account and start trading now.

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