While President Trump talked a lot about world trade on the campaign trail, it's highly unlikely that traders and investors were completely prepared for the breadth and depth of his actual policy initiatives.
While it’s difficult to gauge exactly how much global financial markets have moved based solely on tariff-related policies, these announcements undoubtedly create small flurries of activity in the sectors, sub-sectors, and individual names that have exposure to the targeted products/goods.
This type of activity can also sometimes produce attractive opportunities in the market - depending on your outlook and risk profile.
If you doubt that. look no further than the FXI as a prime example of what the tariff narrative has done to a large number of symbols in the market. The FXI is the ETF for large-cap Chinese equities, and has clearly been a casualty of the trade war. As of late December 2018, the FXI was probing 52-week lows, down approximately 27% from its 2018 high of $54.00.
Moves such as the one observed in FXI create a fairly compelling reason for traders to keep abreast of any tariff-related news developments that may arise it the start of 2019. In such instances, it’s possible a potential trade may materialize, which is why we also recommend (at the very least) adding such symbols to your watchlist.
If you've been looking to learn more about recent developments involving tariffs, a previous installment of Options Jive is well worth a few moments of your time. On the show, the hosts walk viewers through some of the tariff-related market flashpoints from 2018, and provide insight on trading activity in associated symbols.
One example from the show is Harley-Davidson (HOG), which announced in summer of 2018 that they might be forced to move some manufacturing activities outside the United States due to the "trade war." As you can see in the price chart below, HOG dropped roughly 10% in a week when it got caught up in the trade war news cycle:
Looking at a current price chart of HOG, one can see that things have only deteriorated further since summer. As of late December, the stock has lost an additional 18% of the value observed back in early July. Like FXI, the example of HOG provides fairly clear evidence of the potential impact from trade war/tariff news developments.
In addition to HOG, this particular episode of Options Jive covers several other examples which should help traders better understand how the trade war affected certain niches of the financial markets during 2018. Reviewing these situations and associated behavior in the affected sectors/symbols may also provide traders with valuable insights that can be applied to similar situations in the future.
If you have any questions about tariffs or the trade war heading into 2019, we hope you’ll leave a message in the space below, or contact us @tastytrade (Twitter) or email@example.com (email) at your convenience.
We look forward to hearing from you!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.