Copper’s Next Regime Following the Tariff Trade (Part 2)Copper FuturesCOMEX:HG1!mintdotfinanceIn our previous note, we argued that copper has moved into a new regime, one where physical tightness and inventory geography are now doing more of the work than tariff-driven arbitrage. That broader thesis remains intact. But over the coming sessions, it will be tested by a binary legal decision that has the power to reprice trade policy overnight. In this narrow window between a tight physical market and a potentially market-moving Supreme Court ruling, the choice of trade expression becomes just as important as the underlying view. Our previous note was tethered around the ‘collapse’ of the CME-LME copper spread, something we’d also observed in August 2024. Back then, COMEX copper futures found support near $4.14/lb and began to rebound as the spread started to widen again. This served as a reminder that the unwinding of an arbitrage does not necessarily mark the end of a trend when inventory geography remains distorted. The difference today is that this reset is occurring in the shadow of a binary legal event, with volatility already elevated and positioning actively hedged. Volatility Is Now the Battleground As we highlighted in Part 1, copper’s implied volatility rebounded toward the top of its one-year (and 6-month) range in early January. With CVOL at over 35 today, it remains elevated despite the dip. Source: CME QuikStrike In late July 2025, when refined copper was unexpectedly excluded from U.S. tariffs, implied volatility collapsed sharply as policy uncertainty was abruptly removed. While IV has followed the recent trends in prices, we view the current consolidation as a coiled state ahead of another regime-defining outcome. Effectively, volatility is likely to compress when the fog clears and the questions are answered, with potential upside until the ruling. If the Court kills tariffs: CME premium collapses Copper likely sells off Uncertainty disappears and vol dropsIf the Court upholds tariffs: CME premium stays Copper likely rips Uncertainty disappears and vol dropsThis view takes volatility in isolation. Coupled with current options positioning, we can see how traders are positioning around the anticipated ruling. Source: CME QuikStrike Open interest across expiries betrays a bullish outlook, with just a slight increase in the put-call ratio from 0.52 last week to 0.57 today. For the Feb contract, open interest remains skewed toward calls overall, but a sizeable block of puts is clustered near the money, particularly around the $5.50–$5.90 range. Source: CME QuikStrike Looking at the OI change, the rise in downside puts in the $5.50–$5.70 region clearly stands out. In contrast, call open interest around the current price has been trimmed. The reduction in near-ATM call positions suggests that traders are rotating away from delta-heavy exposure near spot. Source: CME QuikStrike The positioning reflects a market that remains structurally bullish, but one that is actively bracing for a sharp move once the policy uncertainty clears. In such an environment, outright directional futures positions become vulnerable to timing risk, as being right about copper but wrong on the headline could prove costly. Three Ways to Express the Copper Thesis Through the Ruling 1) The plain long straddle A classic way to trade a binary event is to buy an at-the-money straddle, capturing any large move regardless of direction. In copper’s case, this structure directly monetises the recent dip in CVOL and the market’s expectation of a meaningful post-ruling repricing. The trade-off, however, is cost. With implied volatility already near one-year highs, a sharp move is required simply to break even, and any post-event volatility compression would work against the position. Source: CME QuikStrike The ATM straddle on the Feb contract would only be in the money if the future price goes above $6.5/lb or tumbles below $5.4/lb, a 9% move in either direction. 2) A directional-volatility hybrid A more efficient structure is a bull call spread financed with downside insurance. For example, a 6.00/6.50 call spread paired with a long 5.70 put keeps exposure to upside continuation, caps premium outlay, and embeds protection against a tariff-driven sell-off. This structure aligns well with current options positioning, where large open interest is clustered at 6.00, 6.50 and 5.70, reflecting exactly this mix of optimism and caution. It is also important to flag execution risk in multi-leg commodity option structures. Bid–ask spreads in copper options can widen materially when legs are combined, which could erode realised returns versus theoretical payoffs. Traders should therefore size positions with this friction in mind and prioritise execution discipline when implementing said structures. 3) A directional core with defined downside (long futures + protective put) Another approach is to stay long copper futures, akin to what we’d shown as a historical set-up for 2024, while also using a protective put to ring-fence the downside. This structure preserves upside participation if the status quo holds, and limits the damage if a tariff rollback triggers a sharp, premium-driven air pocket. In practice, this can be implemented as a long Feb futures position paired with a put struck around the $5.50–$5.70 region, aligning the hedge with the zone where downside protection is already being accumulated in OI. This content is sponsored. 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