Regional Conflict And Market Reaction
Israel and Iran kept trading strikes on Tuesday, including Iranian attacks on targets in Israel and Gulf Cooperation Council states, and Israeli attacks on Iran and Lebanon. An Iranian source told CNN there has been “outreach”, and Pakistan offered to help talks. Brent rose more than 3% to above $103 a barrel and WTI jumped about 4% to above $91. On Monday, Brent fell about 11% and briefly settled below $100 for the first time in nearly two weeks. Citi said oil could test $200 if disruptions persist through June. Chevron rose about 1%, and energy is up nearly 32% year to date and is the only positive S&P 500 sector since the conflict began. Apollo said its $15bn Apollo Debt Solutions saw 11.2% in Q1 withdrawal requests versus a 5% cap, implying about 45 cents on the dollar. Ares said its $10.7bn fund saw 11.6% in requests and also capped at 5%, with both shares down more than 4%.Trade Ideas And Positioning
Jefferies rose about 4% after takeover plans were reported, though later reporting said there were no immediate plans. SMFG has about a 20% economic stake after a 4.9% investment in 2021, while Jefferies is down more than 36% year to date and reports earnings on Wednesday. We are looking at a market that is far calmer than it was during the US-Iran flare-up last year. Back in 2025, geopolitical headlines caused massive swings, but today the VIX is trading around 13, well below the panic levels we saw then. This suggests we should consider selling volatility, as the market seems to be pricing in a more stable environment while the memory of sharp moves remains. The wild swings in oil from last year, when Brent crude jumped from below $100 to over $103 in a single day, show how sensitive energy markets are. The worst-case fears of $200 oil never materialized, with Brent now stable around $86 a barrel. This environment is ideal for selling out-of-the-money call and put options on crude futures, collecting premium from the lingering fear of another supply shock. Energy stocks like Chevron were the main beneficiaries of last year’s conflict, and we see that the Energy Select Sector SPDR Fund (XLE) is still up over 12% year-to-date. These stocks remain the most direct way to play any renewed tensions in the Middle East. We should look to buy call options on dips in major integrated oil companies, using them as a cost-effective hedge against geopolitical flare-ups. The redemption gates at Apollo and Ares last year were an early warning sign for the private credit market. Now, recent data shows that leveraged loan default rates have crept up to 4.5%, putting pressure on the sector’s valuations. This justifies buying protective put options on asset managers with heavy private credit exposure, as any further stress could hit their share prices hard. Looking back, the takeover speculation around Jefferies served as a reminder of how volatile financial stocks can be. The deal with Sumitomo Mitsui never went forward, and Jefferies’ stock gave back most of its gains from that rumor. A good strategy is to sell call spreads on financial firms that see similar M&A-fueled spikes, betting that the excitement will fade without a concrete offer. Create your live VT Markets account and start trading now.
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