The Israel Defense Forces (IDF) said on X that it launched a wave of “extensive strikes” across western Iran. It said it was striking “infrastructure” linked to the Iranian regime, according to The Guardian. The IDF also said Iran continued to launch missiles towards Israeli territory in recent hours. It said defence systems were intercepting the threat and told citizens to enter protective spaces.

Escalation And Regional Security

Iran’s Revolutionary Guard Corps (IRGC) said it would target Israeli Prime Minister Benjamin Netanyahu as the conflict with the US and Israel continues. “We will continue to pursue and kill him with full force,” it said on Sunday on its Sepah News website. Iran also accused “the enemy” of using copycat drones to attack neighbouring countries and shift blame onto Tehran. This followed retaliatory strikes across the Middle East. Ahead of the weekly market open on Monday, traders may move towards risk-off positioning. Oil and the US Dollar may attract fresh buying. Given the renewed conflict and direct strikes, we anticipate a sharp increase in market volatility. The VIX index, a key measure of market fear, has already jumped 15% in overnight trading to over 21, a level not consistently seen since the regional banking stress we observed in early 2025. We are therefore considering buying call options on the VIX or put options on major indices like the S&P 500 to hedge against further downside.

Oil Dollar And Volatility Hedges

Oil markets are the most direct beneficiary of this instability, with Brent crude futures surging past $98 per barrel, the highest since last autumn. With over 20% of global oil passing near the conflict zone through the Strait of Hormuz, any disruption could send prices much higher. Consequently, buying May and June call options on crude oil futures (WTI or Brent) or on energy sector ETFs like XLE appears to be a primary strategy. This situation is a classic risk-off trigger, which typically strengthens the U.S. dollar as a safe-haven asset. The U.S. Dollar Index (DXY) has already broken through the 106 level, its strongest point this year, as capital seeks security. This makes long positions in USD futures or call options on currency ETFs an attractive play against more risk-exposed currencies. Looking back at the market reactions during the initial flare-up in late 2025, the initial shock was followed by a period of intense uncertainty that punished risk assets for several weeks. However, the current direct strikes on Iranian territory, rather than on proxy forces, represent a significant escalation that markets have not fully priced in. This suggests the current defensive posturing may need to be held longer than it was back then. Beyond broad market hedges, specific sectors will face significant headwinds from higher energy costs and geopolitical uncertainty. We are looking at airlines, shipping companies, and consumer discretionary stocks as being particularly vulnerable right now. Establishing put positions or selling call spreads on these sectors could provide a valuable layer of portfolio protection in the coming weeks. Create your live VT Markets account and start trading now.

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