Dow Jones futures fell 0.08% to near 49,420 before the US open on Wednesday, after volatile European trading. S&P 500 futures rose 0.16% to near 7,390, and Nasdaq 100 futures gained 0.51% towards 29,100.
US futures were mixed after risk-off selling overnight. On Tuesday, the Dow closed down 0.65% at a two-week low, while the S&P 500 fell 0.67% and the Nasdaq 100 dropped 0.84%, extending both to a third straight daily decline.
Geopolitical And Inflation Risks
Markets stayed cautious after US President Donald Trump raised the prospect of military strikes on Iran. Higher energy prices added to inflation concerns and rate expectations, with the CME FedWatch tool showing a 40.1% chance of a 25 basis point Fed rise by year-end.
Treasury yields eased after recent peaks. The 30-year yield was 5.170% after a near 19-year high of 5.200%, while the 10-year pulled back from 4.687% and the 2-year from 4.139%, after those highs were set on Tuesday.
Attention turned to Nvidia’s results, alongside earnings from The TJX Companies, Analog Devices, Lowe’s, Target, and Intuit.
Looking back at the market sentiment from 2025, we saw a clear split between lagging industrial stocks and resilient technology names. This divergence presented an opportunity for pairs trading, such as buying call options on the Nasdaq 100 tracking ETF (QQQ) while simultaneously buying puts on the Dow Jones ETF (DIA). This strategy was designed to profit from the relative outperformance of tech, regardless of the broader market’s direction.
Options Based Risk Management
The geopolitical tensions with Iran and resulting energy price pressures created significant market uncertainty. In such an environment, we should have been buying volatility through instruments like VIX call options or long straddles on the S&P 500. Historically, the VIX index surged over 85% in the first weeks of the 2022 Russia-Ukraine conflict, showing how quickly derivative prices can expand during military threats.
Concerns over Federal Reserve policy and rising Treasury yields were a major theme, with the 30-year yield hitting a near 19-year high. We should have used this to purchase put options on long-duration bond ETFs like the TLT. For context, during the 2022-2023 rate hiking cycle, the TLT fell by over 40%, demonstrating the profitability of bearish bets on bonds when yields are rising.
The intense focus on Nvidia’s earnings highlighted a prime opportunity for event-driven strategies. Given that NVDA stock historically posted average post-earnings moves of over 12% in the preceding two years, we should have considered using options strangles to capture a large price swing. This would have allowed us to profit from the heightened volatility without needing to predict whether the results would be positive or negative.
