Investors Hedge China, Tech Risks Amid Trump TACO Trade Drama

While US President Donald Trump’s tariff threats over Greenland dominated the narrative for broader equity markets last week, investors were hedging risks elsewhere. Only three weeks into 2026, the market pattern is similar to last year: Trump makes threats, markets start to show signs of upset then, as the tension de-escalates over a few days, stocks resume a grind higher. For volatility markets, it’s an all-too familiar quick spike and reversal: The Cboe Volatility Index jumped Tuesday, then quickly retreated to below the level from the previous Friday, with the futures curve ending the week in an almost identical shape. Meanwhile, away from the Trump-driven headlines that moved the broader indexes and the VIX, some investors were putting on hedges against geopolitical risks that could pressure shares of Chinese companies and against the potential for disappointing tech earnings. Last week, investors bought about 400,000 lots of March-expiring puts in the iShares China Large-Cap ETF , along with 20,000 contracts in the KraneShares CSI China Internet ETF and 150,000 of Xtrackers Harvest CSI China A-Shares ETF puts. “Without an obvious specific catalyst, these investors may simply be positioning for an escalation in US-China tensions, perhaps following China’s recent criticism of the US’s trade deal with Taiwan,” Christopher Jacobson, co-head of derivatives strategy at Susquehanna International Group, wrote in a note. There’s a sense among strategists that investors are becoming better positioned for the so-called TACO trade, which is limiting how much, and for how long, volatility spikes. “It seems very much like he’s playing this playbook of like, ‘I’m going to go in kind of mad dog style. No one really knows what I could do.’ And then you almost need the market to have a tantrum and then he will back off,” said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. “From an options perspective, it’s when you see those potholes, those are pretty good signals of getting short volatility or reaching for a little upside.” Even some of the geopolitical tensions have had limited impact on volatility. Trump’s framing around the Greenland deal in terms of national security is potentially the sort of justification that China could point to when articulating its own terms over Taiwan. “Markets appear increasingly desensitized to breaches of international laws — whether in Venezuela, Iran, or Greenland,” said Antoine Bracq, head of advisory at Lighthouse Canton. “A similar indifference has prevailed in response to military exercises around Taiwan and the ongoing invasion of Ukraine.” Hedging against declines in semiconductor stocks also picked up ahead of earnings releases expected this week from some of the biggest tech names, including Apple Inc., Tesla Inc. and Meta Platforms Inc. Investors bought Jan. 30 puts in Nvidia Corp., Oracle Corp. and Broadcom Inc. “For now, any market corrections are likely to remain short-lived as long as the US economy is perceived as resilient. In this context, a VIX level above 20 could represent an attractive selling opportunity for retail investors,” said Bracq, who cites technology sector disappointment and labor market deterioration as factors that could change the low volatility regime. With this backdrop and retail investors still willing to buy the dip, VIX spikes will continue to be short lived, as long as data point toward further Federal Reserve rate cuts and a US economy that keeps growing. That could change if unemployment and inflation push high enough to slow the retail flow. “Retail have been a big part of the ‘buy the dip’ trade — so that is a risk if those buyers disappear, which can happen with rising unemployment if they have less disposable income,” said Antoine Porcheret, head of institutional structuring for the UK, Europe, the Middle East and Africa at Citigroup Inc. Market watchers are also focusing on any changes in market structure that may signal a shift in the volume of volatility for sale via zero-day—to-expiry options or the Quantitative Investment Strategy space. UBS Group AG derivatives strategists note that more recently 0DTEs have contributed to a shorter gamma profile, which could drive greater intraday volatility as dealers rebalance, a change from the usual positioning. VIX dealer positioning and exchange-traded products on the index — which have seen outflows recently — are other areas to watch. Monetization of long volatility ETP bets during periods of market stress can dampen VIX spikes. Now that positioning is lighter, that stabilizing influence may be diminished, potentially increasing VIX reactivity. This article was generated from an automated news agency feed without modifications to text.