Reuters, citing Tasnim News Agency, reported on Thursday that Iran’s Islamic Revolutionary Guard Corps (IRGC) said it had targeted a US airbase in response to an attack near Bandar Abbas airport. The IRGC also warned that any further US attacks would trigger “a more decisive” response, and said Washington would bear responsibility for the consequences.
Risk sentiment weakened after the report, with US S&P futures giving up earlier gains. The US Dollar Index rose towards 99.50, while WTI climbed towards $91, and was up 2.35% on the day.
Rising Volatility and Short-Term Trading Strategies
We see this escalation as a clear signal to prepare for higher market volatility in the coming weeks. The CBOE Volatility Index (VIX), often called the market’s fear gauge, has already jumped over 25% to 19.5, a level not seen since the banking tremors of last year. This suggests buying VIX call options or futures is a prudent short-term hedge against broader market declines.
The immediate spike in WTI crude toward $91 a barrel is likely just the beginning if tensions persist. This move is amplified by the latest EIA data showing US crude inventories fell by 3.1 million barrels, much steeper than the 1.5 million barrel draw analysts expected. We are therefore positioning through long call options on WTI futures, targeting the $100 strike price for the coming months.
Sector Performance and Safe Haven Assets
For equity indices, we anticipate clear winners and losers from this geopolitical stress. Put options on airline ETFs like JETS, which is already down 2.5% in pre-market trading, look attractive as rising fuel costs will directly impact their profitability. Conversely, we expect the defense and energy sectors to outperform, and we are adding to call option positions on major contractors and producers.
The US dollar’s surge, with the DXY index climbing to 99.50, confirms a classic flight to safety. This is reinforced by the US 10-year Treasury yield dropping 8 basis points to 4.07% as investors rush into government debt. Buying call options on gold futures (GC) is another key strategy to hedge against further instability.
