Dow Jones futures fell 1.74% to below 46,700 in European hours on Monday. S&P 500 and Nasdaq 100 futures dropped 1.61% and 1.75% to below 6,650 and 24,250. US stock futures slid as oil rose above $113.00 per barrel amid the Middle East conflict. WTI later eased and traded near $100.00.

Market Futures Slide

Output cuts were reported as the Strait of Hormuz remained closed due to the Iran war. Kuwait announced precautionary cuts, while Iraq’s southern output fell to 1.3 million barrels per day from 4.3 million. Qatar’s energy minister told the Financial Times that Gulf producers could halt exports within weeks. The report said oil could reach $150 per barrel. Donald Trump said on Sunday that higher oil prices were a “very small price to pay” for defeating Iran and ensuring global peace. The Telegraph reported he also posted that Iran’s option was unconditional surrender and that he would help select its next leader. US markets fell last week after weaker-than-expected payrolls data. The Dow ended down 3%, the S&P 500 fell 2%, and the Nasdaq 100 declined 1.2%. Higher energy prices have affected inflation expectations and rate-cut timing. This week’s focus includes US CPI and PCE data, plus results from Oracle, Adobe, and Hewlett-Packard Enterprise.

Risk And Volatility Strategy

With futures pointing to a sharp sell-off, the immediate focus is on managing downside risk and volatility. We are seeing the CBOE Volatility Index, or VIX, surge over 20% to trade above 25, reflecting significant market fear. This makes buying put options on major indices like the SPX and NDX a primary strategy for the coming days to either hedge long portfolios or speculate on further declines. The clear driver is the oil shock, and we should position for sustained high energy prices. Call options on crude oil futures or energy-sector ETFs like XLE provide direct exposure to this geopolitical risk premium. We saw a similar situation in mid-2022 when WTI crude stayed above $100 for months, a period where energy was the only S&P 500 sector to post significant gains. This event dramatically reshapes our expectations for Federal Reserve policy. The probability of an interest rate cut by the June 2026 meeting has collapsed from over 60% last week to below 20% according to CME FedWatch data. We can express this view by purchasing put options on Treasury bond ETFs, such as TLT, anticipating that interest rates will remain higher for longer. This week’s inflation data is now the market’s most critical test. After the last core CPI reading in February showed a stubborn 3.5% annual increase, another hot number fueled by energy costs could lock in the Fed’s hawkish stance. We can use short-dated weekly options to trade the volatility expected around the CPI and PCE releases. Looking back from our current perspective, we recall how markets reacted to the initial escalations in 2025. There was a sharp, fear-driven sell-off followed by a partial recovery once the scope of the conflict was better understood. While downside protection is vital now, we should remain nimble, as geopolitical headlines can reverse market direction very quickly. Create your live VT Markets account and start trading now.

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