Market Shock And Regional Disruption
Iran has kept the Strait of Hormuz closed, stopping oil tankers that carry about 20% of global crude production. On Tuesday, oil rose another 7% and European natural gas futures jumped 30%, after a spike in gas prices linked to Europe’s LNG supplies from Qatar. Amazon said services including AWS Lambda, Amazon Kinesis, Amazon CloudWatch and Amazon RDS remain degraded, and recovery could be prolonged. AWS advised customers in the region to migrate workloads to the United States, Europe, or Asia Pacific, depending on latency and data residency. The war is in its fourth day and Bahrain and the UAE host US military bases. Late Monday, Iran largely destroyed the US embassy in Saudi Arabia, and the US is evacuating embassy staff across multiple Gulf countries. AWS also said it bought a 120-acre satellite campus in Ashburn, Virginia from George Washington University for $427 million to develop a data centre. AMZN is trading below its 200-day SMA, with support levels at $197.85 and $176.92.Trade Ideas And Risk Positioning
We are seeing a broad flight from risk assets, and we should anticipate further downside in the coming weeks. The President’s own estimate of a four-to-five-week conflict suggests this initial shock will not fade quickly. We should be buying put options on major indices like the SPY and QQQ to position for continued selling pressure. The direct hit on Amazon’s data centers is a severe blow to the company’s most profitable division. In the real world, AWS consistently generates the majority of Amazon’s operating income, so a “prolonged” disruption to Middle Eastern services will materially impact its bottom line. We will use this weakness to buy AMZN put options, targeting strike prices below the $197 support level. The closure of the Strait of Hormuz is a massive energy supply shock that is not yet fully priced in. We saw Brent crude oil surge from around $90 to over $120 a barrel in weeks after the 2022 Ukraine invasion, which was a smaller disruption to global supply than this. We should be aggressive in buying call options on oil ETFs like USO and energy sector funds like XLE. The 30% spike in European natural gas is a direct threat to the continent’s economy, as it heavily relies on LNG shipments from Qatar that pass through the Strait. This echoes the energy crisis Europe faced in 2022, which led to recessionary fears and underperformance in their markets. Buying puts on European ETFs is a logical way to trade this escalating economic headwind. The unusual 5% drop in gold signals a panicked “dash for cash,” not a return to stability. We saw this exact pattern in the early days of the 2020 market crash, where investors sold everything, including safe havens, to raise liquidity. Once this phase of forced selling is over, we expect capital will rush into traditional safe havens, making this a good opportunity to build a long position in gold through call options on an ETF like GLD. Create your live VT Markets account and start trading now.
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