Insights 
VT 
The new US tariffs represent the initial outcomes of a trade agreement, featuring an inclusive cap of 15%. This aims to enhance stability for businesses, allowing EU exports to gain a more competitive stance.
Currently, this arrangement serves as a temporary framework designed to aid further negotiations. It does not constitute a comprehensive trade deal, with the EU affirming this perspective. The 15% tariffs are a temporary measure, reminiscent of similar agreements between the US and China.
Potential Deterioration
There remains a possibility that the situation could deteriorate if the EU continues to view the deal as unfair in the long term. However, there is also a chance that the EU may choose to endure the situation until the end of Trump’s term.
Based on today’s date, August 1, 2025, the new US-EU trade framework with its 15% tariff cap is creating a period of temporary calm. For derivative traders, this suggests that implied volatility on trade-sensitive stocks, especially in the European automotive and industrial sectors, will likely decrease in the coming weeks. We’ve seen the VSTOXX index, Europe’s main volatility gauge, already dip by 5% over the last week in response to this news, reinforcing the market’s short-term relief.
With this expected stability, strategies that benefit from lower volatility, such as selling covered calls or credit spreads on European ETFs like the FEZ, could be favorable. The defined 15% tariff limit removes a major source of negative surprises for now, making it easier to predict a trading range for these assets. This approach allows us to collect premium while the market digests the current “play nice” environment between the two economic blocs.
Lessons From Past Trade Disputes
However, we must remember the lessons from the volatile trade disputes of the 2018-2020 period, when sentiment could turn on a dime. The current deal is explicitly temporary, meaning this stability is fragile and could unravel later in the year or in early 2026. Therefore, while we act on the current calm, we are also looking for low-cost ways to hedge against a future breakdown in talks.
Looking further ahead, it might be wise to consider buying longer-dated protection, such as out-of-the-money put options expiring in six to nine months. Recent German industrial output figures showed a modest 0.2% increase, indicating the EU’s economic backbone is still vulnerable to any future trade shocks. These longer-term options act as an insurance policy if the EU eventually deems the deal unfair or political tensions re-emerge.
The political angle, suggesting the EU may be waiting out the current US administration’s term, adds another layer for consideration. This implies that while the next few months may be quiet, volatility could spike dramatically around key political events leading into the next election cycle. We are treating political polling numbers as an increasingly important data point for timing our long-term volatility trades.
