US President Donald Trump posted on Truth Social that he would destroy Iran if it does not reopen the Strait of Hormuz by a deadline. The post included a threat and profanity.
In a second post, he set the deadline as Tuesday, 7 April, at 9:00 PM Eastern time. He also referred to “Power Plant Day” and “Bridge Day” in Iran.
Oil Supply Shock Risk
Afterwards, a spokesperson for Iran’s foreign ministry said Iran would respond to attacks on its infrastructure. The spokesperson said Iran would target similar infrastructure owned by the US or linked to it.
With the Tuesday deadline looming, the most direct play is on crude oil. About a fifth of the world’s daily oil supply passes through the Strait of Hormuz, and a closure would cause an immediate and severe price shock. We should be aggressively buying near-term call options on WTI and Brent futures to position for this spike.
When we look back at the market reaction to the invasion of Ukraine in 2022, we saw Brent crude jump nearly 35% in just two weeks. History suggests this kind of geopolitical threat in a major energy chokepoint is not priced in until it’s too late. The current situation presents a similar, if not more explosive, potential for a rapid move upwards in energy prices.
This level of uncertainty means we must also bet on rising volatility. The VIX is the market’s fear gauge, and it is likely to surge as the deadline approaches and tensions escalate. Buying VIX call options expiring in the next few weeks is a direct way to profit from the inevitable market panic.
Direct conflict would immediately benefit defense contractors, and we should be positioning accordingly. Looking at how stocks like Raytheon and Lockheed Martin performed during previous conflicts, we see a clear pattern of outperformance. We are buying call options on major defense ETFs as well as individual names we favor.
Second Order Market Impacts
Simultaneously, we are targeting industries that will be hit hardest by a surge in fuel costs. Airlines are at the top of this list, as fuel represents one of their largest operating expenses. Buying put options on the major carriers and the JETS ETF is a clear hedge against rising oil prices.
An energy-driven inflation shock could easily tip the broader market into a correction. To protect against this systemic risk, we are building positions in put options on the S&P 500 and Nasdaq 100. This is a necessary hedge in case the situation spirals out of control beyond just the energy sector.
