Be cautious of the turbulence in the U.S. stock market! Trade worries are weighing on the market, and option traders are hedging against significant volatility at the end of the month.

Due to the recent uncertainty in the US-China trade situation, options traders are buying options to hedge against significant fluctuations in US stocks. At the end of this month, the leaders of China and the US will hold a meeting. The implied volatility of S&P 500 index futures expiring on October 31 is currently close to 20, higher than contracts before and after that date. The Chicago Board Options Exchange Volatility Index (VIX) curve also showed a similar "inflection point" at the end of the month. Recently, US President Trump softened his stance on Chinese tariffs, easing concerns about further escalation of the US-China trade war. Nevertheless, as the situation could change rapidly, traders are still reluctant to take risks. For example, after months of stable growth, the US stock market plunged on October 10 when President Trump posted tough messages on social media threatening to impose "massive increases in tariffs" on Chinese goods; following the news, Wall Street traders quickly hit the sell button, with concerns about the escalating trade war instantly overwhelming the previous optimism in the market. Dennis Debusschere, Chief Market Strategist at 22V Research, said: "Our fundamental prediction remains that as long as the leaders of China and the US hold a meeting at the end of the month, the situation may ease. If the meeting is canceled, the possibility of escalation will increase sharply." Morgan Stanley's trading department also expressed a similar view, with their Global Market Intelligence Director, Andrew Tyler, stating that during the period from October 31 to November 1, the market "will still be in a high-volatility environment," with expectations for the leaders of China and the US to attend the Asia-Pacific Economic Cooperation summit. In a report to clients last week, Tyler wrote, "By then, any agreement will not trigger a substantial pullback." The $9.4 billion KraneShares CSI China Internet ETF clearly shows investors' increasing demand for safe-haven assets. The skew in the one-month 25-delta put/call options of the ETF is currently at its highest level since early April, indicating that market anxiety will continue to rise from now until mid-November. According to the bank's strategist, volatility of Chinese concept stocks is rising due to "tariff panic". There is an overall sense of unease in the market. The Chicago Board Options Exchange Volatility Index (VIX) is hovering above 20, a level that usually indicates increased market pressure. The VVIX index, which measures VIX volatility, closed at its highest level since April on Thursday. Michael O'Rourke, Chief Market Strategist at JonesTrading, said stock traders will have "interesting weeks" ahead. Additionally, the Federal Reserve will hold a meeting on interest rates on October 29. Concerns about credit losses at US regional banks and the US government shutdown have resurfaced, intensifying uncertainty and increasing calls for protection against collapse in the coming weeks. For Amy Wu Silverman, Head of Capital Markets Derivatives Strategy at Royal Bank of Canada, after a period of relative calm, the rise in the VIX index "should have happened earlier". Silverman said, "If anything different, I think it's encouraging for investors who have been continuously pressing the 'hedge' button but also hoping for some form of monetized assurance." She added that traders have been buying puts on financial stocks and gradually buying calls on gold. There are signs that trade negotiations between China and the US are still progressing, which helped the S&P 500 index close higher in a volatile week. Despite lingering uncertainties about trade, the US government shutdown, and inflation, the benchmark index is less than 1.5% away from its historic high. Sadiq Adatia, Chief Investment Officer at BMO Global Asset Management, said, "From a monetary perspective, the market has not actually fallen much." He stated that so far this year, the market has "overcome" many risks. However, given the "numerous" risks, he believes that volatility will remain high at the end of this month.