Dow Jones futures rose 0.14% to above 49,700 during European trading on Tuesday. S&P 500 futures gained 0.13% to near 7,160, while Nasdaq 100 futures added 0.27% to about 26,820 ahead of the US open.
Moves in futures came as reports said Iran will send a delegation to Islamabad for a second round of talks with the US before the truce expires. Donald Trump said Vice President JD Vance will travel to Pakistan to resume negotiations, either Tuesday night or Wednesday morning.
On Monday, Wall Street ended lower in regular trading. The Dow Jones slipped 0.01%, the S&P 500 fell 0.24%, and the Nasdaq 100 lost 0.26%, after tensions escalated again over the weekend.
Large technology shares led declines, with Broadcom and Meta down more than 2%. Microsoft, Nvidia, and Alphabet dropped over 1%.
Trump said he is unlikely to extend the truce with Tehran if no deal is reached before it expires this week. He added the Strait of Hormuz will remain blocked until an agreement is finalised.
These developments pushed oil prices higher and raised inflation risk. That reduced expectations for Federal Reserve rate cuts.
We are seeing a slight relief rally in futures based on the hope of a deal between the US and Iran. However, the market remains on a knife’s edge, with the truce set to expire this week. This environment suggests that implied volatility is underpriced, making it a key area to watch.
The CBOE Volatility Index (VIX) is currently trading near 18, up from lows around 14 just last month, but this may not fully price in the risk of negotiations failing. Buying call options on the VIX or VIX-related ETFs could provide an inexpensive hedge against a sharp market downturn if the talks collapse. This strategy would profit from a spike in fear.
With the Strait of Hormuz, a chokepoint for nearly 20% of the world’s daily oil consumption, at risk, any escalation will directly impact energy prices. We are already seeing West Texas Intermediate crude holding above $95 a barrel, a level not seen since the supply chain scares of late 2025. Bullish call spreads on energy ETFs like XLE or USO could offer a way to profit from further price shocks.
The recent surge in oil prices has significantly dampened expectations for a Federal Reserve rate cut, which was a major tailwind for stocks earlier this year. The probability of a June rate cut has fallen from over 75% to below 40% in the last few weeks, according to CME Group data. This shift makes it prudent to consider protective put options on rate-sensitive growth sectors, particularly the Nasdaq 100 via the QQQ ETF.
For those of us holding long positions in the broader market, the current calm in futures presents a window to add downside protection. Buying S&P 500 (SPY) or Dow Jones (DIA) put options that expire in the next several weeks can act as insurance. The goal is not to bet against the market, but to mitigate potential losses from a negative geopolitical surprise.
