Market Reaction And Geopolitical Shock
The operation, named “Epic Fury”, was reported to have killed Ayatollah Ali Khamenei, followed by Iranian strikes that killed three US service members. Shipping firms suspended routes through the Strait of Hormuz and rerouted around Africa. Defence stocks rose, with Lockheed Martin up over 3%, Northrop Grumman about 4%, RTX about 4%, and AeroVironment over 10%. Airlines fell, including United down over 5%, with American and Delta also down about 5%. Energy shares gained, led by Exxon up about 4%, Chevron about 3%, and ConocoPhillips over 5%. Tanker stocks rose: Frontline over 5%, DHT Holdings 7%, and International Seaways 6%. Markets priced a roughly 96% chance the Fed holds rates at 3.50–3.75% in March. Nvidia said it will invest $2 billion each in Lumentum and Coherent; both rose over 7% premarket.Key Risks And Trading Implications
ISM Manufacturing PMI was 52.4 in February versus 52.6 in January, the second month of expansion and only the third time in 40 months. New Orders were 55.8, down from 57.1. With the VIX spiking nearly 20% to 23.6, we see a clear opportunity to buy protection and bet on continued uncertainty. Historically, geopolitical shocks like this cause sustained volatility; for instance, after the initial conflict escalation in early 2022, the VIX remained above 20 for several months. We believe buying out-of-the-money VIX calls or establishing call spreads for April and May expirations is a prudent move. The surge in WTI crude to $72 a barrel is the market’s most immediate concern, directly threatening the inflation outlook. We should look at buying call options on oil futures and energy stocks like Exxon Mobil, which has already gained 4%. Looking back at similar supply shock events, such as the 10% jump in oil prices during a single week in March of 2022, the follow-through for energy equities lasted for several weeks. This creates a classic pair trade opportunity between soaring defense stocks and plummeting travel names. We can go long calls on RTX and Lockheed Martin while simultaneously buying puts on United Airlines and booking platforms like Expedia. The performance gap is already stark, with the Dow Jones U.S. Aerospace & Defense Index outperforming the Dow Jones Travel & Tourism Index by over 8% in a single session, a divergence we expect to widen. The oil shock complicates the Federal Reserve’s path, making rate cuts in the near future highly unlikely. After we saw core inflation finally dip below 3% in late 2025, a sustained energy price increase could easily reverse that progress and force policymakers to hold rates steady. This suggests we should consider trades that bet against a dovish turn, such as buying puts on Treasury bond ETFs. While the broader market recovered from its lows, we should use any strength to hedge long-term portfolios. The announced Nvidia investment is a positive fundamental story, but it is being completely overshadowed by the macro risk. Buying puts on the Nasdaq 100 ETF (QQQ) can protect against further downside if the conflict escalates and oil prices continue to climb toward $80 per barrel. Create your live VT Markets account and start trading now.
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