The United States plans to finalise trade negotiations with countries lacking formal agreements by the end of October. This announcement comes from Treasury Secretary Scott Bessent during a recent interview with Nikkei Asia.
Key Partners Involved
Ongoing discussions involve key partners such as Canada, Mexico, and Switzerland. These countries aim to secure better arrangements to mitigate the effects of new US tariffs and maintain their access to the US market. In some cases, the US is employing tariffs as a bargaining tool to gain advantages in non-trade-related issues.
With a clear end-of-October deadline for trade negotiations, we should anticipate a significant rise in market uncertainty. This creates a textbook environment for an increase in implied volatility, particularly in options contracts tied to affected markets. We saw this pattern clearly during the 2018-2019 trade disputes, when the VIX index repeatedly surged past 20 as tariff deadlines approached.
The currencies of nations still in talks, especially the Canadian dollar and Mexican peso, are now at the center of this uncertainty. Traders should consider using options to hedge or speculate on sharp movements in pairs like USD/CAD and USD/MXN. Looking back at the last major trade renegotiation in 2018, the Mexican peso experienced weekly swings of over 2%, a level of volatility that could easily return in the coming weeks.
We should also focus on equity sectors that are most exposed to tariff risk, such as industrials and materials. Put options on ETFs tracking these sectors, like the Industrial Select Sector SPDR Fund (XLI), could serve as a valuable hedge against negative outcomes from the talks. The latest July 2025 jobs report showed a slight slowdown in manufacturing employment, suggesting these sectors are already sensitive to any further economic pressure.
Opportunities in the Options Market
For those who expect volatility but are unsure of the direction, option spreads offer a defined-risk way to trade the news. A long straddle on a broad index, purchased now, could profit from a large market swing whether a deal is reached or negotiations collapse. The key is to get into these positions before implied volatility rises too much, making them more expensive.
The inclusion of Switzerland presents a unique “safe haven” dynamic for traders to watch. If global risk sentiment sours due to these trade talks, we could see capital flow into the Swiss franc for safety, causing it to strengthen. Therefore, call options on the franc could act as a good hedge against broader market turmoil stemming from a breakdown in the US negotiations.
