S&P 500 futures fell about 0.6% to 6,370, reaching seven-month lows during Asian trading hours ahead of the US session on Monday. Futures stayed under pressure as risk aversion rose amid uncertainty over a resolution to the Iran conflict. Reuters reported that US President Donald Trump told the Financial Times the US could “take the oil in Iran,” including seizing the export hub of Kharg Island, which he said is undefended. He also said discussions with Tehran are “doing extremely well,” with indirect talks via emissaries and a deal possibly achievable “fairly quickly.”

Geopolitical Risk Drives Futures Lower

The Wall Street Journal reported last week that the US Pentagon is considering deploying 10,000 additional troops to Iran. On Iranian state TV, Ebrahim Zolfaqari said “US troops will be good food for sharks of the Persian Gulf.” Markets are also focused on US economic releases this week, including labour market data such as Nonfarm Payrolls and the ISM Purchasing Managers’ Index. Nike, McCormick & Company, and Conagra Brands are due to report earnings in the week ahead. We remember the market jitters in 2025 when S&P 500 futures fell to 6,370 on fears of a US-Iran conflict. That sharp, geopolitically driven drop serves as a key reminder of how quickly sentiment can turn. Today, the market feels different, but the underlying risk of a sudden shock remains a primary concern for us. Currently, the CBOE Volatility Index (VIX) is hovering near 13, which is significantly lower than the spikes we saw during last year’s tensions. This suggests a degree of complacency in the market, making protective put options on indexes like the SPY relatively inexpensive. A small allocation to puts could be a cost-effective hedge against unforeseen turmoil, learning the lesson from 2025’s sudden sell-off.

Positioning With Options While Volatility Is Low

The focus on oil in the 2025 dispute is particularly relevant now, with WTI crude oil prices firming up above $82 a barrel amid ongoing production cuts and tensions in the Red Sea. We see traders positioning for potential supply shocks by using call options on energy sector ETFs like the XLE. This allows for upside exposure if geopolitical risks in the Middle East were to escalate unexpectedly. Looking back, traders in 2025 were watching Nonfarm Payrolls and PMI data closely. This week, our attention is fixed on the upcoming Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge. A hotter-than-expected number could dampen hopes for rate cuts and add volatility, making any existing hedges more valuable. The conflicting messages from officials during the 2025 event highlight the need to trade the market’s reaction, not the headlines themselves. We are watching implied volatility levels across different sectors to see where fear is being priced in. Right now, the low cost of options presents an opportunity to establish defensive positions before a potential crisis, rather than during one. Create your live VT Markets account and start trading now.

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