0323 | When the Iranian storm collides with the Fed's hawkish pivot, who is "swimming naked"? A guide to surviving options in high volatility.

This article is from the "Weekly Options Strategy" column, which provides fellow investors with a review of last week's market, the main highlights for the current week, and an analysis of potential options trading opportunities. Welcome!Click hereSubscribe to the learning updates, and you will receive notifications when new columns are published.

Happy Monday, cow friends~

Last week, tensions in the Middle East escalated, with major central banks releasing hawkish signals during the 'Super Central Bank Week,' fueling tight monetary trading globally. This caused U.S. Treasury yields to rise significantly, pressuring risk asset prices broadly and leading to a breakdown in traditional safe-haven assets like gold and silver.

Entering this week, risks first fermented in the Asia-Pacific markets, with large-scale sell-offs occurring in Hong Kong stocks, A-shares, and the Japanese and Korean markets. With risks suddenly escalating, how should we respond? Let’s delve into this week's [Options Weekly Strategy].

The situation in Iran remains volatile, with market sentiment low. How should we respond?

Since the outbreak of tensions in Iran, the conflict has entered its fourth week, showing no signs of easing but instead continuing to escalate. The most critical variable over the weekend was Trump issuing a 48-hour ultimatum to Iran, demanding the full restoration of passage through the Strait of Hormuz or the U.S. would strike Iran’s power facilities; Iran also escalated its response, explicitly threatening that if the U.S. takes action, it will retaliate against the energy and freshwater infrastructure of Gulf nations and may completely shut down the Strait of Hormuz.

Last Friday, all three major U.S. stock indices fell, with $S&P 500 Index(.SPX.US)$the Dow Jones Industrial Average dropping 1.51%, $Nasdaq Composite Index(.IXIC.US)$the S&P 500 falling 2.01%, $Dow Jones Industrial Average(.DJI.US)$and the Nasdaq Composite declining 0.96%. Technology stocks faced particularly significant pressure, with the current S&P 500 index already breaking below the 200-day moving average (a key indicator dividing bull and bear markets) and now hovering near the second support level.

Since the outbreak of the U.S.-Israel-Iran conflict, U.S. equities have remained relatively 'resilient' compared to global equity markets. One reason is that equity markets often lag behind bonds in responding to interest rate cut expectations, and another is the belief that Trump might again resort to 'TACO' (Temporary Avoidance of Conflict Operations).

However, in the past week, trading saw a 'compensatory correction,' with diminishing marginal utility for Trump’s TACO as diplomatic mediation and substantive negotiations failed to materialize. According to Bank of America Merrill Lynch’s March Global and Asian Fund Manager Survey (as of March 17), global investor sentiment hit a six-month low, with cash levels rising from 3.4% in February to 4.3% in March, marking the largest monthly increase since March 2020. Markets have begun pricing in higher oil price benchmarks and are no longer anticipating further interest rate cuts by the Fed—a stark contrast to the previously established expectation of rate cuts. For this to occur, it implies an expectation that the conflict will persist into the third and fourth quarters with oil prices remaining above $100.

Opportunity Analysis

The market is likely to enter a phase characterized by "occasional rebounds, weak trends, and high volatility," with short-term movements prone to erratic fluctuations, while medium-term recovery remains challenging. Unless there is a substantial easing of the situation in Hormuz and oil prices remain elevated, it will be difficult for equity markets to achieve a smooth recovery. During this period, rebounds are inevitable and could even occur sharply, as any news regarding negotiations, escorts, reserve releases, or rerouting of transportation can trigger short-covering.

However, even if the market experiences rebounds, these are more likely to be driven by rapid, news-based corrections rather than the start of a clean upward trend. Unless both oil prices and yields decline simultaneously, such rebounds are better characterized as trading-driven corrections rather than the beginning of a new mid-term rally.

Options strategy

Recently, $Invesco QQQ Trust(QQQ.US)$ has experienced a significant pullback, with current prices approaching short-term support levels. Numerous technical indicators have signaled oversold conditions, providing a technical basis for a potential rebound. However, persistent net outflows from major capital indicate that downward pressure has not been fully alleviated, and rebounds may face selling pressure, with sustainability remaining uncertain. Short-term traders interested in participating in rebound opportunities should strictly set stop-losses to guard against the risk of further downside if the rebound fails.

On March 20, the implied volatility (IV) was 29.00%, with its IV percentile reaching 91%. This typically reflects a market pricing in panic or uncertainty, increasing the likelihood of volatility retreating from extreme highs. On the same day, the put-call ratio (PCR) was 0.86, below 1 and lower than in previous days, indicating a slight improvement in market sentiment.

(1) If you believe the market's weakness may persist in the short term and wish to express a bearish view,

(The profit and loss at expiration for this strategy can be referenced in the diagram below. The displayed design image is for illustrative purposes only and does not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the option prices shown do not represent actual market values.)

If you anticipate that high oil prices will continue to delay interest rate cuts and suppress valuations in the technology sector, a more prudent approach would be to avoid directly purchasing deep out-of-the-money puts and instead adopt a Bear Put Spread with 30 to 45 days until expiration: for example, buying a put while simultaneously selling a more out-of-the-money put. This strategy helps mitigate time decay and risks associated with a decline in implied volatility, which is especially important given the already heightened volatility environment.

(2) If you remain bullish on tech-heavy positions like QQQ and expect a possible short-term rebound but want to hedge against potential losses,

(The profit and loss at expiration for this strategy can be referenced in the diagram below. The displayed design image is for illustrative purposes only and does not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the option prices shown do not represent actual market values.)

Consider implementing a protective Collar Strategy, which involves purchasing a Put option while simultaneously selling a Call option at a higher strike price to form a collar. This approach can further reduce the cost of insurance.

The yield on the 10-year U.S. Treasury has risen above 4.4%, placing direct downward pressure on the valuation of high-valuation technology stocks, indicating that high-beta assets remain under stress. The Collar Strategy sacrifices some potential upside in exchange for limited losses during periods of extreme volatility.

Navigating the crude oil fog: Has Trump's Taco strategy lost its effectiveness?

Global energy markets are once again focused on the narrow waters of the Persian Gulf — the Strait of Hormuz. Since the U.S.-Israel joint military strikes against Iran, this 'world oil valve,' which carries about 20% of global oil shipments, has become the epicenter of geopolitical maneuvering and price volatility.

Shipping through the Strait of Hormuz has nearly come to a halt, with any news regarding negotiations, military actions, or facility attacks often triggering daily oil price fluctuations exceeding 5%. Market sentiment is fragile, driven by headline news.

Trump’s policies continue to oscillate between military pressure and tactical de-escalation, aiming to create favorable conditions for negotiations or to force Iran into concessions, but also significantly increasing the risk of miscalculation and unintended escalation.

Opportunity Analysis

The crude oil market is currently caught in a fierce tug-of-war between 'short-term geopolitical maneuvering' and 'long-term structural transformation.' The consensus is that the center of oil prices has systematically shifted upward, but the short-term trajectory remains highly uncertain, with extremely high volatility. The conflict has escalated from blockading the strait to directly targeting oil and gas production facilities (such as Iran’s South Pars gas field). This touches upon the livelihood baseline of Iran, potentially prompting retaliatory attacks on neighboring countries’ infrastructure, which could result in supply disruptions at the source. The risks far exceed the current shipping interruptions.

In the short term (over the next few weeks), the core focus of market trading will be geopolitical maneuvering and the timeline for a ceasefire. All eyes are on one specific question: When will the Strait of Hormuz reopen (or partially reopen)? In this regard, the market has outlined three mainstream scenarios:

The first scenario is a 'rapid de-escalation' (with reduced probability), where Trump seeks to cool tensions ahead of midterm elections; however, the current state of the conflict is far more complex than the earlier surprise attack on Venezuela at the beginning of the year.

The second scenario is a 'prolonged standoff' (with increased probability), where the strait remains partially operational, and issues related to tanker insurance remain unresolved.

Third is the 'extreme escalation' (tail risk), where attacks on key energy infrastructure trigger a full-blown crisis. Due to the rapidly evolving situation, short-term forecasts by institutions are highly uncertain, with Morgan Stanley predicting that the average crude oil price in the second quarter could reach $110 per barrel.

In the long term (the second half of 2026 and beyond), the underlying logic of the market will shift toward permanent damage to supply capacity and geopolitical risk premium.

At that point, the focus will shift from the geopolitical events themselves to more fundamental questions: How much of the Middle East's crude oil production capacity can be restored? How can the global depleted inventory be rebuilt? A strong consensus has emerged in the market: the central level of oil prices will permanently rise, and the pre-war 'comfort zone' of $65-70 is no longer attainable, with a new, higher price floor expected to emerge.

Options strategy

Amid an environment of highly divergent expectations for oil prices and extreme volatility, the options market tracking WTI crude oil has become the forefront of capital speculation. $United States Oil Fund LP(USO.US)$ Last week, Bull Bull Classroom provided a detailed breakdown of why crude oil ETFs fail to sustainably track oil prices and how to deploy strategies based on the characteristics of the term structure. Interested fellow investors can revisit it. ~

Hormuz, Term Structure, and USO: How to Navigate the Energy Storm

As of last Friday, the implied volatility of USO options reached 91.14%, with the IV percentile at 96%, theoretically favoring option sellers. Since the outbreak of the U.S.-Iran conflict, the open interest in USO options has surged significantly, with a relatively high concentration in Put positions, and the Put/Call ratio consistently exceeding 1, indicating hedging or bearish demand in the market.

The recent U.S.-Iran conflict causing shipping disruptions in the Strait of Hormuz has been the core factor driving up oil prices. The market expects the shipping disruptions to persist for several weeks, but there is also uncertainty regarding potential easing of tensions.

Given the characteristics of 'high volatility + event-driven,' simply buying directional options (whether Calls or Puts) faces challenges such as high premiums and time value decay. Managing risks, leveraging volatility premiums, and preparing contingency plans for different scenarios may be more important and rational choices.

(1) Enhancing returns while staying calm and collecting rent: Covered Call - writing covered call options.

The covered call is a classic income-generating strategy suitable for investors who already hold the underlying asset, remain confident in its long-term prospects, but maintain a neutral view on short-term gains. In volatile or moderately rising markets, it can continuously enhance portfolio returns; by leveraging high volatility environments, it generates excess premium income.

For example, if you already own 100 shares of USO stock, you could sell one corresponding call option at your target price. If USO’s price equals or exceeds the strike price of the sold call at expiration, you will be obligated to sell at the strike price, capping your maximum profit; if it falls below the strike price, you will retain the entire premium from selling the call. However, if crude oil prices drop significantly, the premium may not offset losses.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the option prices shown in the illustration do not represent actual values.)

(2) Moderately Bullish: Bull Call Spread

In the current environment where implied volatility (IV) has surged sharply, making options expensive, if one believes that USO will continue to rise, buying a call option outright may prove too costly. A Bull Call Spread might be a more optimal choice.

This strategy uses the income from selling a higher-priced call to partially subsidize the cost of purchasing a lower-priced call, thereby establishing a bullish position at a lower net cost. Selling the higher-priced call also entails voluntarily giving up unlimited upside potential above that strike price, in exchange for defined risk and reward.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the option prices shown in the illustration do not represent actual values.)

Gold Plummets—Is the Precious Metals Bull Market Over?

On Monday, spot gold fell to $4,100 per ounce, erasing all year-to-date gains. Meanwhile, as the Middle East conflict entered its fourth week, risks of further escalation between the US and Iran persisted. Rising oil prices have not only heightened inflation risks but also dampened expectations for near-term interest rate cuts by central banks. Current market pricing indicates a probability exceeding 30% of a Federal Reserve rate hike within the year. This has weighed on gold, which recorded an eight-day losing streak, marking its largest weekly decline since 1983.

As the situation evolves, market expectations for the Middle East conflict have shifted toward a “prolonged standoff.” Data from prediction markets such as Polymarket show that the likelihood of a ceasefire within three months has dropped to 12%, with a high probability of prolongation until April or May. Against this backdrop, trading themes are transitioning from short-term emotional shocks to deeper secondary effects—namely, negative feedback loops caused by tightening liquidity and the pressure of high energy costs on inflation and supply chains. This was the fundamental reason for last week’s sharp increase in volatility across core assets like gold, U.S. Treasuries, and global equities.

Opportunity Analysis

The recent sharp pullback in gold prices can primarily be attributed to liquidity shocks driven by rebounding inflation and heightened expectations of interest rate hikes. However, once geopolitical tensions ease, signs of economic recession emerge, and markets pivot back toward expectations of rate cuts, gold is highly likely to regain upward momentum. Currently, gold prices have partially priced in expectations of rate hikes within the year. From a technical perspective, last week’s heavy-volume selloff sent the RSI indicator plummeting from a January peak of 90 to 29, entering oversold territory.

In reality, the Fed’s policy trajectory has not undergone a fundamental change. The latest FOMC dot plot shows that the 19 policymakers still generally expect one rate cut within the year. The perception of a strong “hawkish” stance stems largely from Chairman Powell’s tone-setting remarks: he emphasized inflation risks posed by the Middle East conflict while downplaying concerns about a deteriorating labor market and repeatedly stressed future uncertainties. This has tilted market sentiment toward expectations of tighter monetary policy.

For gold, the movement of real interest rates will be a key variable. If the conflict drags on and inflation expectations continue to rise, with the Federal Reserve's rate hike path becoming increasingly clear, the pressure on gold may persist. However, whether suppressed safe-haven demand can be re-released once geopolitical tensions show signs of easing remains the biggest market悬念. The following macroeconomic data should be closely monitored in the near term, as they will provide some guidance for the upcoming interest rate trajectory: U.S. initial jobless claims for the week ending March 21 (8:30 AM EST on March 26), and the U.S. core PCE price index for February (8:30 AM EST on March 28).

Options strategy

(1) For investors holding relatively heavy $SPDR Gold ETF(GLD.US)$positions: Collar strategy

If investors believe that gold may have peaked in the short term and faces the risk of continued correction, but still wish to maintain their long positions without closing them prematurely, they can adopt a protective collar options strategy.

Operation: A typical investment strategy is to buy out-of-the-money (OTM) put options as downside protection while simultaneously selling OTM call options to offset the cost of protection. Given that this options combination (one buy, one sell) is generally neutral, it is particularly suitable for precious metals currently experiencing high volatility. Even if implied volatility (IV) contracts subsequently, the strategy not only provides substantive protection against spot price declines but also effectively prevents additional losses from a standalone purchase of options due to falling IV.

Advantages: The premium collected from selling call options significantly offsets or even fully covers the cost of buying put options (enabling the construction of a zero-cost collar), avoiding the risks associated with pure option buying during IV contraction (Crush). This strategy sets a clear "stop-loss floor" for holdings without liquidating the spot position, greatly enhancing the cushion against downside risks.

Risks: The main trade-off is sacrificing potential upside gains if the underlying asset experiences a significant price surge beyond the strike price of the call option. If prices surge past the call option’s strike price, the call option will be assigned, forcing the investor to sell the spot at that strike price to realize profits. Additionally, although maximum downside losses are strictly capped by the Put, the investor must still bear the retracement loss between the current market price and the Put strike price.

(2) For investors anticipating a rebound in precious metals after reaching a bottom: Bull Call Spread strategy

If investors believe that gold may have fallen to a medium- or short-term bottom and is poised for a rebound, they can explore using a bullish call spread options strategy. A more cautious investment approach would involve extending the expiration period as much as possible within an affordable premium range and selecting in-the-money call options.

Operation: Buy a call option with a lower strike price while simultaneously selling the same number of call options with a higher strike price.

Advantage: By selling options to offset part of the premium cost, the strategy mitigates the risk of implied volatility (IV) decline (Crush). Although it caps the potential profit, it significantly lowers the breakeven point.

Maximum Risk: Full loss of the net premium. However, since the premium income is generated by one leg of the spread as a seller, the investor's maximum loss is relatively cushioned compared to a standalone long position, while also avoiding the impact of volatility contraction.

(The design images displayed on the screen are for illustrative purposes only and do not constitute any investment advice or guarantee; market conditions fluctuate frequently, and the option prices shown in the illustration do not represent actual values.)

Futu Securities Analyst Xu Anyu

CE: BWS681

(The author is a licensed individual under the Securities and Futures Commission, and neither he nor his associates hold any financial interests in the recommended stock issuer.)

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