The S&P 500 stayed firm at the open despite two events: a hearing involving Kevin Warsh and the expiry of a two-week ceasefire linked to Iran. After the ceasefire lapsed, hostile statements resumed and a US blockade remained in place, while Iran did not enter talks.
A more restrictive approach around the Strait of Hormuz then replaced earlier, market-friendly messaging from Iranian representatives on Friday. Reports also referred to preparations for a possible return to conflict.
The Warsh hearing added uncertainty rather than being priced in beforehand, and markets moved into a risk-off stance during the session. A second round of negotiations did not take place.
Later, Donald Trump announced a unilateral extension of the ceasefire, and markets shifted back to risk-on within minutes. The dollar kept about half of its earlier risk-off gains by the end of the day.
We remember how last year, in 2025, the market whipsawed violently on headlines about Iran and ceasefire extensions. The S&P 500 reversed in minutes based on a single presidential statement. This taught us that in a “neither war, nor peace” scenario, headline risk is the most dominant factor for intraday moves.
That same pattern of geopolitical tension is re-emerging today. Recent reports show a buildup of naval assets near the Strait of Hormuz, and tanker traffic has reportedly slowed by over 10% in the last two weeks alone. This is creating echoes of the blockade tactics we saw back in 2025.
This tension is already being priced into commodities, with WTI crude futures now holding above $92 a barrel. The CBOE Volatility Index, or VIX, has also crept up from the low teens to over 21, its highest level this year. This shows that the market is beginning to buy protection against a potential shock.
Given the memory of 2025’s sudden reversals, placing simple directional bets with futures is extremely risky right now. Traders should instead look at buying volatility through options, such as purchasing at-the-money straddles on the SPY or QQQ. This strategy profits from a large move in either direction, protecting against a sudden “risk-on” or “risk-off” event.
For those with existing long equity positions, this is a critical time to hedge. Buying out-of-the-money put options on major indices offers a straightforward insurance policy against a sharp downturn. Using put debit spreads can also be an effective way to lower the cost of this protection while defining the risk.
This geopolitical situation is happening as last month’s CPI data came in slightly hot at 3.2%, creating uncertainty about the Fed’s rate path later this year. Just as the Warsh hearing created an overhang of doubt in 2025, this inflation stickiness adds another layer of instability. The dollar has already strengthened to a six-week high against the Euro, showing a quiet flight to safety is underway.
