US shares fell on Monday after new reports from the Persian Gulf raised fears that the US-Iran ceasefire is weakening. The Dow fell about 0.9% towards 49,000, the S&P 500 slid about 0.40% from a record close above 7,200, and the Nasdaq lost about 0.40% from its own record.
The Dow is now down more than 1,000 points from Friday’s peak near 49,900. The move followed reports that the UAE engaged missiles and drones said to have been launched from Iran.
Persian Gulf Escalation
The UAE Ministry of Defence said four cruise missiles were inbound, three were intercepted over territorial waters, and one fell into the sea. A drone hit the Fujairah Petroleum Industries Zone, causing a fire and lightly injuring three workers, and authorities reported a second wave within the hour.
Oil rose as Iranian state media said two missiles hit a US warship near Jask Island, while Iran’s Navy said it stopped American and Israeli warships entering the area. US Central Command denied any strike and said two US-flagged merchant vessels transited under Project Freedom announced on Sunday.
WTI rose about 3% above $105 a barrel and Brent climbed over 5% above $114, with both above $100 for nearly two weeks. March factory orders rose 1.5% month on month versus 0.5% expected, and this week includes JOLTS, ADP, jobless claims, Challenger cuts, and several Fed speakers, with markets pricing zero further moves this year.
The escalating conflict in the Persian Gulf points to a sustained period of higher market volatility, so we should consider buying call options on the CBOE Volatility Index (VIX). This acts as a direct hedge against further equity downside, as the VIX typically surges during major geopolitical shocks. As we saw during the initial phase of the Ukraine conflict in 2022, the VIX spiked over 85%, showing how quickly fear can be priced into the market.
The surge in crude prices, with Brent breaking above $114, suggests direct bullish plays on energy are warranted. We can use call options on WTI futures or on energy ETFs to capitalize on further supply disruptions from the Strait of Hormuz. With statistics showing that roughly 21 million barrels of oil pass through the strait daily, representing about 21% of global petroleum liquids consumption, any prolonged closure could send prices significantly higher.
Sector Positioning Ideas
We should also look at bearish positions on travel and leisure sectors, which are highly sensitive to both rising fuel costs and geopolitical fear. Buying put options on airline ETFs or on specific cruise lines like NCLH could prove profitable if these tensions continue to simmer. This rotation follows the pattern we observed in 2025, when concerns over a global slowdown first pressured consumer discretionary spending.
On the long side, the rotation into defense contractors and energy producers is a clear trend to follow. We can establish bullish positions through call options on major defense stocks, which typically rally during periods of armed conflict as investors anticipate increased government orders. This is a playbook similar to the one that worked well following the escalation of European conflicts in the early 2020s.
While geopolitics are dominating headlines, we must not lose sight of this week’s key economic data and tech earnings. The upcoming Job Openings and Labor Turnover Survey (JOLTS) report, a key metric for the Federal Reserve, could easily shift the market’s focus back to domestic policy. Therefore, using shorter-dated options could be a prudent way to trade the immediate earnings reactions from names like AMD without being overexposed to the unpredictable Gulf situation.
