Iran’s top joint military command said Tehran would broaden its strikes and target the interests of the US and its allies across the region if Washington attacks Iran’s nuclear sites, according to Xinhua on Tuesday. Iranian State TV said such a move would amount to an expansion of war in the region. The comments followed US President Donald Trump’s statement that the US would be hitting the Pickaxe Mountain area “pretty soon”.
US Central Command said it carried out an 11th night of strikes on Iran early Wednesday. Air-defence activity was reported in western, eastern and north-eastern Iran, while East Azerbaijan authorities reported a US airstrike on a military site near Tabriz. In markets, West Texas Intermediate rose 2.50% to $84.35.
Energy Markets And Volatility Outlook
We are seeing immediate pressure on energy markets as WTI crude surges 2.5% to $84.35 following the escalation of airstrikes in Iran. Given the threats of broader regional retaliation against US and allied assets, we must prepare for heightened price swings in the coming weeks. Historical precedents, like the geopolitical spikes of late 2023 and 2024 where crude call options traded at their highest premiums in years, suggest that we are entering a major volatility cycle.
Options Market Strategy And Risk Management
In the options market, we expect the call-skew to widen dramatically as hedgers rush to buy upside protection for $95 and $100 strikes. We recommend that traders utilize bull call spreads to capture this upside momentum while mitigating the high cost of inflated implied volatility. This strategy limits our risk exposure if diplomatic backchannels suddenly cool down the situation.
For volatility traders, we suggest implementing long straddles to profit from the sharp, unpredictable price gaps that typically occur during active military conflicts. We must also closely monitor our margin accounts, as clearinghouses often raise margin requirements by 10% to 20% during energy supply shocks to account for overnight risk.
