Insights 
VT 
US and China are holding talks in Stockholm for a second day to discuss trade relations. The meetings aim to extend the current truce that is set to expire on 12 August.
China has come to terms with the imposition of higher tariffs, while the US is cautious of potential disruptions in rare earth exports. Both nations are working towards finding a mutually beneficial path forward.
Market Volatility Concerns
With the August 12th truce deadline fast approaching, we are looking at a potential spike in market volatility. The current talks in Stockholm are the key catalyst, and any hint of failure could rattle the market significantly. We believe traders should consider buying protection or placing bets on a large price swing.
The CBOE Volatility Index, or VIX, is currently hovering near 14, but we have seen weekly call option volume for mid-August expirations jump by over 30%. This suggests traders are bracing for a binary outcome from the talks, either a relief rally or a sharp sell-off. We think holding long volatility positions through this period is a prudent strategy.
Rare Earth Export Concerns
We are also paying close attention to the mention of rare earth exports. As China still controls over 90% of global rare earth processing, any disruption represents a serious risk to tech and defense supply chains. Buying out-of-the-money call options on rare earth producers could provide a cheap but powerful hedge if negotiations turn sour.
History shows us that these trade negotiations create choppy markets. During the intense 2018-2019 trade war, headlines alone regularly caused 2% swings in the Nasdaq 100 index. Therefore, we expect the two weeks leading up to August 12th to be driven more by rumors and soundbites than by fundamentals.
