US index futures fell about 0.5% on Thursday, after earlier drops of more than 600 points in the DJIA, 1.5% in the S&P 500, and 2.2% in the Nasdaq. Prices then rebounded within about an hour, briefly turning positive before ending modestly lower.
The VIX rose above 25, the highest level in weeks, as US markets prepared to close on Friday for Good Friday. Traders headed into the Easter weekend with unresolved risk.
Market Volatility And Geopolitical Risk
Earlier in the week, equities rose after reports of a possible US exit from Iran within two to three weeks and a separate claim about a ceasefire request. Later, a prime-time address included a pledge to hit Iran “extremely hard” over the next two to three weeks, which was followed by falls in Asia, with South Korea’s Kospi down more than 4% and Japan’s Nikkei 225 down over 2%.
A later rebound followed Iranian state media reporting work with Oman on a Strait of Hormuz transit protocol, allowing commercial vessels to pass for a fee. Oil prices stayed elevated, with WTI up about 8% near $110 a barrel and Brent up about 5% above $105.
Energy was the best-performing S&P 500 sector, up more than 36% year-to-date. Jobless claims fell to 202K versus 212K expected, the lowest in nearly two years, ahead of Friday’s NFP release.
Looking back at the spring of 2025, we saw how markets can be thrown into chaos by geopolitical headlines. The Dow swung hundreds of points in a single hour based on conflicting reports about Iran and the Strait of Hormuz. That episode pushed the VIX above 25, a clear signal of the extreme uncertainty traders were pricing in for the weeks ahead.
Volatility Pricing And Hedging Costs
Today, the CBOE Volatility Index is much more subdued, hovering around 15.1 as of this week. This suggests the market is far more complacent than it was during the Iran scare in 2025. For derivative traders, this lower volatility means that options, particularly protective puts on indices like the SPX, are relatively inexpensive right now.
Just as in 2025, we are again seeing crude oil dictate market sentiment, with WTI futures climbing over 15% in the last quarter to trade above $85 a barrel. While the focus then was the Strait of Hormuz, today’s price pressure comes from disciplined OPEC+ supply cuts and persistent shipping disruptions in the Red Sea. This situation is creating a similar undercurrent of risk for the broader market that cannot be ignored.
We remember how strong economic data, like the low jobless claims of 2025, was completely overshadowed because the geopolitical situation was the only story that mattered. Currently, the market is intensely focused on inflation data and the Federal Reserve’s next move on interest rates. However, that 2025 experience serves as a powerful reminder that a single geopolitical flare-up can make all that economic data irrelevant overnight.
Given the parallels in the energy markets and the current low cost of hedging, derivative traders should consider positioning for a potential spike in volatility. This could involve buying call options on energy sector ETFs like the XLE, which would benefit directly from any further increase in oil prices. At the same time, using this period of a low VIX to build defensive positions is a prudent strategy, as history shows the market’s calm can be shattered without warning.
