Market Reaction And Immediate Risk
Trump said the US would attack Iran’s energy and transportation infrastructure on Tuesday at 8 PM Eastern Time (ET) if the Strait was not reopened. Iranian state media reported that Iran rejected the proposal and called for a permanent end to the war. A spokesperson for Iran’s top joint military command described Trump’s threats as “delusional”. The spokesperson said the threats would not address what they called “disgrace and humiliation” of the US in the region. At the time of publication, WTI was down 0.21% at $103.65. The deadline of 8 PM ET tonight puts us on high alert. With WTI crude already over $103, the market is tense but hasn’t fully priced in an actual attack. We are positioning for a significant price swing in either direction before markets open tomorrow.Options And Hedging Strategies
An attack on Iran would almost certainly attempt to close the Strait of Hormuz, a chokepoint for nearly 21 million barrels of oil per day. We saw Brent crude spike over $120 after the conflict began in Ukraine in 2022, and a direct disruption here could be far more severe. Buying short-dated call options on oil futures is the most direct way to capitalize on this potential outcome. The slight dip in oil prices yesterday suggests some believe this is posturing, much like the diplomatic flare-ups we saw back in 2025. If a last-minute deal is reached and the Strait reopens, we could see a rapid sell-off to below $95 a barrel. In this scenario, put options offer a way to profit from a sharp drop in oil prices. Given the uncertainty, betting on a specific direction is a gamble. A more prudent strategy is to trade the volatility itself, perhaps through straddles on oil ETFs, which will profit from a large move either up or down. We’re also watching the VIX, which could easily double from its current levels if military action begins. Beyond crude, we are looking at options on defense sector ETFs for potential upside from the conflict. Conversely, airline and transportation stocks are extremely vulnerable to a sustained oil price shock. We are hedging our broader equity portfolios with index puts in case of a wider market sell-off. Create your live VT Markets account and start trading now.
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