Trump has signed an executive order extending the China tariff deadline by 90 days, moving the expiration to 9th November. The initial deadline was set to expire tomorrow, but the extension means it will not conclude as previously scheduled.
This 90-day delay on China tariffs pushes a major market risk down the road. This means the immediate fear that was priced into the market is now unwinding. We should see a significant drop in implied volatility.
Impact on Volatility Index
We expect the CBOE Volatility Index, or VIX, which has been elevated in anticipation of the deadline, to fall back toward its recent lows. We saw this pattern repeatedly during the 2018-2019 trade disputes, where tariff delays consistently led to sharp drops in volatility. This makes selling near-term volatility an attractive strategy for the coming weeks.
This relief should fuel a rally in equity indices, particularly those with heavy exposure to global trade. Companies in the semiconductor and industrial sectors, which have been sensitive to supply chain tensions, are positioned to benefit most from this temporary stability. Data from earlier this year has already shown that U.S. goods imports from China remain a critical component of the economy, underscoring the market’s sensitivity to this issue.
For specific trades, we are looking at buying call options on the Nasdaq 100 and key technology stocks. The expected drop in implied volatility makes buying these options cheaper than it was just last week. Selling out-of-the-money put spreads on broad market ETFs is another way to benefit, as it takes advantage of both lower volatility and the expectation of a stable-to-rising market.
Future Market Implications
While the immediate outlook is positive, this is a delay, not a resolution. The tariff threat will re-emerge as the new November 9 deadline approaches. This sets up an opportunity to position for a return of uncertainty later in the autumn, perhaps by buying longer-dated volatility options once the current calm has fully set in.
