US equity futures fell about 0.5% on Thursday after a sharp intraday swing. At the lows, the Dow was down more than 600 points, the S&P 500 fell 1.5%, and the Nasdaq dropped 2.2% before recovering to briefly turn positive.
The VIX rose above 25, its highest level in weeks, ahead of markets closing on Friday for Good Friday. Trading then moved on rapid shifts in news about Iran and the Strait of Hormuz.
Markets React To Fast Moving Headlines
Earlier in the week, US comments about leaving Iran within two to three weeks lifted shares, and the Dow rose more than 200 points on Wednesday. Later, a prime-time address included plans to hit Iran “extremely hard” over the next two to three weeks, reversing the earlier move.
Asian markets fell on Thursday, with South Korea’s Kospi down more than 4% and Japan’s Nikkei 225 down over 2%, while Dow futures pointed to a 600-point drop. A later report said Iran is working with Oman on a toll-based passage plan for commercial vessels in the Strait of Hormuz, sparking a rebound that faded by the close.
WTI crude rose about 8% to near $110 per barrel and Brent gained about 5% to above $105. Energy was up more than 36% year-to-date, while jobless claims fell to 202K versus a 212K consensus.
We remember the spring of 2025, when markets would swing 600 points on a single headline about the Strait of Hormuz. The CBOE Volatility Index, or VIX, spiked above 25 as conflicting messages sent traders scrambling. This exhausting pattern of hope one day and fear the next showed how quickly geopolitical risk can dominate everything.
Today, the environment feels much calmer, with the VIX hovering near 14, a level not seen for much of the past year. This complacency can be dangerous, as the events of last year proved that volatility can appear with no warning. The lesson for traders is that even in a quiet market, the risk of a sudden shock remains, making cheap portfolio protection a prudent strategy.
Lessons From Volatility And Risk Management
Back then, crude oil was firmly in control, with WTI prices surging towards $110 per barrel and dictating the direction of the entire market. In contrast, WTI has been trading in a stable range around $81 per barrel recently, supported by the latest EIA report showing a healthy build in crude inventories. While energy stocks are no longer leading the market, we should remember how a single choke point like Hormuz can instantly make oil the only story that matters.
We also saw how strong economic data, like the drop in jobless claims to a two-year low, was completely ignored in favor of geopolitical rumors. Today, the market is laser-focused on every economic print, with the last Nonfarm Payrolls report on March 8th causing a significant repricing of Fed rate cut expectations. This shift back to fundamentals is welcome, but it also creates a blind spot if tensions were to flare up unexpectedly.
Given this history, derivative traders should see the current low VIX as an opportunity to buy protection. Inexpensive, out-of-the-money puts on indices like the S&P 500 can provide a valuable hedge against a sudden spike in fear. The whiplash of 2025, where the market could erase a 2% loss in an hour, is a powerful reminder that headline risk is ever-present.
The experience of heading into that long Good Friday weekend in 2025 with so much unresolved risk should not be forgotten. Holding unhedged positions over any period is a gamble that a single news alert can turn against you. Therefore, structuring trades with defined risk, such as using spreads, remains the most sensible approach in the coming weeks.
