A Trump-Putin summit will take place at the end of next week. Ukraine’s President Zelenskiy is supporting U.S. efforts to secure a ceasefire in Ukraine and hopes for a compromise to end the war. U.S. stocks are on the rise. The Nasdaq has gone up nearly 200 points, or 0.92%.

Market Reactions to the Upcoming Summit

As the Trump-Putin summit approaches, investors are optimistic about a potential ceasefire in Ukraine. The Nasdaq’s gains today reflect this positive sentiment. However, traders should be cautious, as disappointment is possible. The CBOE Volatility Index, known as VIX, has risen this week from the low 14s seen in July to just over 17. This suggests that while stocks are climbing, the options market is bracing for a big price change in either direction after the summit. Traders may benefit from long volatility strategies, like buying straddles on broad market indexes. We should also consider sectors affected by the conflict. Defense stocks, which have performed well since the war began in 2022, might face challenges if a peace deal is reached. This could be a good chance to buy put options on major defense contractors that have profited from the ongoing conflict. Energy markets are also reacting to this geopolitical situation. A successful ceasefire could relieve pressure on global energy supplies, possibly causing Brent crude, currently around $88 per barrel, to drop back towards the low $80s. Buying puts on oil futures or energy sector ETFs might be a smart way to capitalize on this possibility.

Geopolitical Events Impact on Markets

We only need to recall the market shock from February 2022 to understand how quickly geopolitical events can impact asset prices. The VIX soared to over 35 during the initial invasion, while global equities plummeted. A favorable outcome at the summit could have a similarly strong, but opposite, effect on the market. Since the market has already risen on hopes of good news, there’s a risk of a “sell the news” reaction, even if the summit goes reasonably well. If negotiations fail, the market could drop sharply and quickly. Therefore, buying protective puts on the SPY or QQQ with expirations in late August or September would provide a smart hedge against unfavorable outcomes. Create your live VT Markets account and start trading now.

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