The US-China trade talks in Madrid are nearing conclusion, according to US President Donald Trump. A deal was reached regarding a company that young people wish to save, identified as TikTok.<\/p>\n
Trump plans to speak with President Xi on Friday. He emphasised that the relationship between the US and China remains strong. <\/p>\n
The President shared this update on his Truth Social account, referencing an earlier news item. There is no definitive outcome concerning tariffs, but an agreement on TikTok has been suggested.<\/p>\n
The positive tone from the US-China meeting is a clear signal to reduce short-term downside protection. We are seeing implied volatility collapse, with the CBOE Volatility Index (VIX) dropping below 15 for the first time in weeks. This pattern is reminiscent of the market reactions we saw during the trade negotiations of the late 2010s, where positive headlines caused immediate, albeit sometimes temporary, market spikes.<\/p>\n
Traders should focus on technology, especially the semiconductor sector which has been highly sensitive to trade rhetoric. The PHLX Semiconductor Index (SOX), for instance, has historically shown outsized reactions to shifts in China policy. Buying short-dated call options on major tech-focused ETFs seems to be the immediate play to capture this upward momentum.<\/p>\n
The specific agreement on TikTok introduces a more complex trade for the social media space. A secured future for TikTok in the US means tougher competition for user engagement and advertising dollars. We might consider put options or bearish spreads on companies like Meta or Snap, which could face renewed pressure.<\/p>\n
We should also look at China-focused ETFs, which have surged on the news; the iShares MSCI China ETF (MCHI) is a good proxy for this sentiment. However, since there is no definitive deal on tariffs yet, these gains are built on fragile optimism. Selling some out-of-the-money puts could be a way to collect premium while acknowledging that the situation could change.<\/p>\n
All eyes will now be on the scheduled call with President Xi this Friday. This creates a clear catalyst for weekly options, as we expect volatility to pick back up heading into that event. Any disappointment from that call could quickly reverse today\u2019s positive market reaction.<\/p>\n
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