Managing Tariff-Induced Uncertainty With Cboe's Volatility Products

Market uncertainty results in investors and market participants having difficulty assessing current and future market conditions, resulting in heightened market volatility. At present, the trade policy actions being taken by the Trump administration are causing reverberations across the market, with many believing that they will have a negative economic impact. While market volatility is inevitable, investors and traders do not need to succumb to it, as there are investment offerings that provide a means of mitigating loss and/or capitalizing on momentary market downturns. Thus, instead of being a challenge, market uncertainty can potentially become a gateway to maximizing returns.

The Current Market Backdrop

President Trump's ‘Tariff On, Tariff Off" actions, as they pertain to Canada and Mexico – the U.S.'s largest trading partners – have left the market unsettled. In February 2025, President Trump announced 25% tariffs on the neighboring countries, only to delay them for a month. At the beginning of March 2025, tariffs were instituted; however, days later, it was announced that tariffs on automakers would be paused for another month. Subsequent to the previously stated announcement, President Trump again changed course, pausing tariffs on Mexican and Canadian goods covered by the United States–Mexico–Canada Agreement (USMCA) free trade treaty until April 2025.

In contrast to the ‘on again, off again' situation between the U.S., Canada and Mexico, Trump's trade actions with China have been resolute, with the President instituting a 20% tariff on all goods. In response, Beijing announced retaliatory tariffs on imports of some agricultural goods from the U.S.

The flurry of announcements and trade actions has elevated market uncertainty, as evidenced by the elevation of the Cboe Volatility Index^® (VIX^® Index) and equity market sell-offs across the U.S., Europe and Asia seen in March.

Managing Uncertainty With Cboe

With the current market uncertainty stemming from political decision-making, there is truly no predictable time frame as to when it will abate. Instinctually, investors may feel inclined to flee to ‘safe-haven' assets like gold to avoid market volatility. However, there are alternate courses of action that can be taken, allowing investors and traders to manage risk while still maintaining market exposure. Cboe Global Markets, Inc. CBOE has a diverse offering of investment solutions that can aid investors in managing the risks present in an uncertain market environment.

VIX^® Index Volatility Products

Cboe's VIX Index Volatility Products suite allows investors to tailor their volatility exposure as needed. Though each offering’s intended audience is distinct, the value proposition is consistent.

VIX Index Options are cash-settled, European-style settled derivative instruments with monthly and weekly expirations. Traders and investors can use these investment offerings to hedge market volatility, speculate on future volatility and increase portfolio diversification.

VIX Futures reflect the market's estimate of the VIX Index's value on various future expiration dates, enabling traders to speculate on or hedge future market volatility. Because VIX futures provide exposure to volatility independent of market direction, they facilitate both risk management and alpha-generation volatility strategies.

Cboe’s Mini VIX Futures are one-tenth the size of the regular VIX futures contract, offering flexibility in managing volatility risk and providing appropriate exposure when allocating among smaller managed accounts.

Cboe’s Options on VIX Futures are contracts that offer more choices to express directional views and manage equity market volatility exposure. These new, innovative contracts provide optionality into front month VIX futures, are physically settled and trade on Cboe Futures Exchange, LLC.

FLEX^® Options

Flexible Exchange Options, or FLEX Options, are customizable solutions that allow investors to determine the parameters of the options contract, including exercise style (e.g., American vs. European), expiration date, strike price, contract size and, occasionally, the deliverable.

The high degree of customization allows investors and traders to design hedging and speculative strategies uniquely aligned with their investment goals.

Cboe’s standard Index FLEX Options are available on major stock indexes (S&P 500^®, Russell 2000^®, MSCI EAFE, MSCI Emerging Markets and Dow Jones Industrial Average), individual equities and ETFs/ETPs.

Alternatively, Cboe’s Index FLEX Micro Options provide more flexibility and precision for managing exposure to larger-valued broad-based indexes. With a contract multiplier of 1, rather than the conventional 100, insurers can more precisely hedge a portfolio based on notional value, which may equal a fraction of a standard contract.

Taking Action With Cboe

Given the high degree of uncertainty present in the current market environment, utilizing all the investment tools available at one's disposal to mitigate risk or capitalize on it can prove to be a beneficial course of action. For knowledgeable investors and traders, Cboe's VIX Volatility suite and Flex Options are offerings that can be additive components within one's ongoing portfolio management.

For investors or traders seeking to become more knowledgeable on these products, Cboe offers The Options Institute,  an educational platform providing everyone from beginners to professional traders a forum to familiarize themselves with foundational knowledge on options or learn of new developments taking place within the investment derivatives landscape.

It is important to remember that responsible options trading is based on defining an investment objective and using analysis and informed decision-making to determine the most appropriate trading strategy, not emotions. Understanding how options work and the associated risks, just like any other financial asset, is paramount. 

Featured photo by Maxim Hopman on Unsplash.

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