The US and Iran held talks on Friday, and Iran said it would reopen the Strait of Hormuz immediately. Oil prices fell, while US share indices rose, with the Dow Jones Industrial Average up over 2% and the S&P 500 and Nasdaq Composite each up about 1.5%.
The report links the move to a conflict between the US and Israel and Iran that began on 28 February, nearly 50 days earlier. It also says airline costs rose with jet fuel prices during the conflict.
Markets React To Strait Reopening
US President Donald Trump said Israel would be barred from further bombing of Lebanon, after a 10-day ceasefire between Israel and Lebanon began on Thursday night. Iran’s Foreign Minister Seyed Abbas Araghchi said commercial vessel passage through the Strait of Hormuz would be “completely open” for the remaining period of the ceasefire.
The ceasefire talks are described as having begun about 10 days ago. The US is said to be discussing a deal for Iran to access $20 billion in frozen funds in exchange for giving up highly enriched uranium, including uranium enriched to 60% purity or above, with a proposed 20-year moratorium and a five-year counter-offer.
Airline shares rose, with United up over 10% and JetBlue and Southwest each up more than 9%. Hilton and Marriott shares reached new all-time highs.
With the immediate risk of war removed, we see the CBOE Volatility Index (VIX) likely collapsing from highs that probably exceeded 35 in March, similar to levels seen during the 2022 Ukraine invasion. This presents an opportunity to sell volatility, as option premiums were inflated by war fears that have now subsided. Selling cash-secured puts or credit spreads on solid companies is a primary strategy for the coming days.
Strategy For The Coming Days
The sharp drop in oil is the market pricing in the immediate reopening of the Strait of Hormuz, through which about a fifth of the world’s oil passes daily. We believe WTI crude, which likely traded over $110 a barrel just last week, will now struggle to rally unless the peace talks falter. Looking back at 2025, we recall how quickly energy markets can reverse, so we would be cautious about chasing this move lower and instead look for prices to stabilize.
Airline stocks are the most direct beneficiaries of this news, as jet fuel can account for nearly 30% of their operating expenses. The surge in names like United Airlines is a massive relief rally, and we can use derivatives to capitalize on this sentiment shift. Selling puts on the JETS ETF or its strongest components allows us to collect premium while expressing a bullish view that the worst is over for the sector.
The overall market relief, reflected in the S&P 500’s jump, suggests geopolitical risk is being unwound across the board. However, this is a 10-day ceasefire, not a permanent treaty, making the situation fragile. We see this as similar to the initial Iran nuclear deal framework announced back in 2015, which was a positive step but still left significant room for failure.
Therefore, while our primary positions will be bullish, we must maintain a hedge against a breakdown in negotiations. A small allocation to cheap, far out-of-the-money call options on oil ETFs or put options on the SPY expiring in late May provides an inexpensive form of insurance. If the talks collapse, these positions would help offset losses from the broader market downturn that would surely follow.
