US President Donald Trump posted social media comments attacking Canada. The posts included threats to block the opening of a US-Canada bridge named after a Canadian hockey player, and a claim that a Canada-China trade deal would end ice hockey in Canada.
UBS economist Paul Donovan said these outcomes are unlikely. He said markets may treat the comments as noise.
He noted that several previously threatened tariffs have not happened. These include tariffs on US importers of goods from Iranian trading partners, 100% tariffs on US importers of Canadian goods, and 50% tariffs on US importers of Canadian aircraft.
The article says it was produced with the help of an Artificial Intelligence tool and reviewed by an editor.
We have learned that political rhetoric often serves as market noise rather than a precursor to actual policy. Looking back from our perspective in early 2026, we recall the analysis from 2025 regarding the Trump administration’s social media posts against Canada. The key takeaway was that despite the severe threats, many tariffs never materialized, conditioning markets to eventually ignore the bluster.
This pattern of headline-driven volatility provides a recurring opportunity, especially as we see new geopolitical tensions simmering today. Historically, during the 2018-2019 trade disputes, the VIX index frequently spiked over 25% on tariff announcements, only to retreat in the following weeks as implementation details were delayed or softened. Current market data shows implied volatility in the semiconductor sector (SOXL options) has risen 15% in the last two weeks on little more than diplomatic chatter, echoing these past overreactions.
Selling Volatility Into Headline Spikes
For the coming weeks, this suggests a strategy of selling into strength in volatility. When news about trade restrictions or political standoffs causes implied volatility to jump, selling out-of-the-money puts on affected indices like the SPX or QQQ can be profitable. The market has consistently overpriced the actual impact of these events, leading to a predictable decay in options premiums.
Another approach is to use calendar spreads to capitalize on this dynamic with more defined risk. We can sell a front-month option to capture the elevated, fear-driven premium while buying a longer-dated option at a lower volatility. This positions us to profit as the short-term panic subsides and the term structure of volatility returns to its normal state.
Ultimately, history shows that the follow-through on aggressive trade rhetoric is often weak. A Peterson Institute for International Economics study reviewing the 2018-2020 period found that nearly a third of threatened trade actions were never implemented or were significantly walked back. We should therefore treat politically-driven market dips not as a fundamental shift, but as a window to position against short-term fear.
