US equities came under renewed selling pressure on Wednesday after President Donald Trump said the US\u2013Iran ceasefire that began in early April had ended following fresh hostilities. The US said it fired on 80 Iranian military assets in response to an earlier attack on an oil tanker in the Strait of Hormuz, and Iran replied with waves of strikes on US military installations in Bahrain and Kuwait. Reports also said the US moved 5,000 military planes to the region. WTI crude jumped over 4%.<\/p>\n
Equity futures weakened ahead of the open, with NASDAQ 100 futures down more than 1%, while S&P 500 and Dow Jones Industrial Average futures fell more than half a percentage point. The NASDAQ 100 was trading below its 50-day SMA, reinforcing the risk-off tone. In Asia, South Korea\u2019s KOSPI slid more than 5% overnight and broke technical support at 7,400; SK Hynix and Samsung Electronics remained under pressure after Samsung reported operating income rising 18X YoY. US-linked chip names were softer in premarket trade, with Sandisk (SNDK) and Micron (MU) also down.<\/p>\n
Given the renewed conflict and market jitters, we believe volatility is now undervalued. The CBOE Volatility Index (VIX), which measures expected market turbulence, often jumps from the mid-teens to over 30 during geopolitical shocks, as it did in early 2022. We are therefore considering buying call options on the VIX or VXX exchange-traded note to profit from an anticipated spike in fear.<\/p>\n
The immediate 4% jump in WTI crude oil is likely just the beginning of a larger move. Since nearly 20% of the world’s total oil consumption passes through the Strait of Hormuz, any military action there poses a significant supply risk. We recall that in the weeks following the invasion of Ukraine in 2022, Brent crude prices surged over 30%, suggesting call options on crude oil futures or energy sector ETFs like XLE could see substantial gains.<\/p>\n
With the NASDAQ 100 now below its 50-day moving average, a key technical support level has been breached. Historically, once this level is broken during a period of uncertainty, markets tend to test the 200-day moving average, which could represent another 5-7% downside from current levels. Consequently, we see value in purchasing put options on the QQQ ETF as a hedge or a direct bearish bet against the tech sector.<\/p>\n
The weakness in South Korean semiconductor stocks is a clear leading indicator for their US counterparts. This pattern of profit-taking in a strong market, triggered by external shocks, can cascade quickly through a globally connected industry. For this reason, we are looking at bearish option strategies, such as buying puts, on semiconductor ETFs like the SMH or on particularly vulnerable names like Micron Technology.<\/p>\n\n\n\n