Donald Trump posted on Truth Social that the United States would suspend bombing and attacks on Iran for two weeks. He said the pause followed talks with Pakistan’s Prime Minister Shehbaz Sharif and Field Marshal Asim Munir, and was conditional on Iran agreeing to the “COMPLETE, IMMEDIATE, and SAFE OPENING” of the Strait of Hormuz.
Trump described the pause as a “double sided CEASEFIRE” and said US military objectives had been met. He also wrote that the US had received a 10 point proposal from Iran, and that many past disputes between the two countries had been agreed, with the two-week period intended to finalise an agreement.
Markets React To Ceasefire Headlines
After the post, risk appetite improved and US equities rose. The S&P 500 gained over 1.50% and the Nasdaq 100 rose more than 1.70%.
Gold climbed over 1.50% to around $4,770. WTI fell more than 7.50%, dropping from about $108 to $101 per barrel.
The US Dollar Index (DXY) extended losses by 0.47% to 99.51 at the time of writing.
We are seeing a significant drop in WTI crude oil because the potential reopening of the Strait of Hormuz eases major supply fears. This strait is a critical chokepoint; as recently as 2024, data showed it handled about 21 million barrels per day, or roughly 20% of global petroleum consumption. Given the fragile two-week nature of this ceasefire, we should look at options that profit from high volatility, as a snap-back is very possible if talks fail.
The sharp rally in the S&P 500 has likely crushed the Volatility Index (VIX), making protective options cheaper. We remember from the trade disputes back in 2019 how quickly positive sentiment could be reversed by a single message, causing volatility to spike from below 15 to above 20 in a matter of days. Buying VIX call options or puts on the SPY ETF now could serve as inexpensive insurance against this deal collapsing before the deadline.
Positioning For A Binary Two Week Outcome
We noticed that gold rallied alongside equities, which is explained by the dollar’s sharp decline, with the DXY falling below 100. Historically, a weaker dollar provides a strong tailwind for gold prices, a relationship we saw play out repeatedly during the high inflation years of 2021-2022. Any sign of the ceasefire failing would likely reverse this, strengthening the dollar as a safe haven and putting pressure on gold.
The central theme for the next two weeks is the temporary nature of this social media-announced ceasefire. The market is reacting as if peace is secured, but we should position for the binary outcome of the deadline. This suggests strategies like buying straddles or strangles on the most affected assets, like oil ETFs, to play the expected explosion in volatility rather than picking a definitive direction.
