How We've Traded This War So Far
In a trade alert last Thursday (June 12th), I included a volatility trade in case war broke out between Israel and Iran. That night, Israel bombed Iran. The next day, I exited those trades for gains of 53% and 159%, respectively.
In a post last Sunday ("A Game Plan For The Israel-Iran War"), I mentioned that if the market opened green on Monday, I would add hedges. On Monday (Trade Alert: Hedging), I mentioned three specific hedges:
I didn't get a fill on Monday's volatility hedge, but I did get fills on the oil hedge and the Nasdaq hedge, the optimal puts on Invesco QQQ Trust (NYSE:QQQ). Both of those hedges were up about 40% as of Tuesday's close.
What's Likely To Happen Next
I think there's a good chance the U.S. bombs Iran next. Here's why:
Evidence Suggesting The U.S. May Bomb Fordow
Why a U.S. bunker-buster hit on Fordow is plausible
I'd put the odds of the U.S. bombing Iran within the next several days at about 40%.
The Likely Market Reaction
Typical first-hour tape reaction to a headline strike
- S&P 500: –1½ % to –3 %
- Nasdaq 100 / QQQ: –2 % to –3½ %
- VIX: +4–6 vol-points (e.g., 22 → 27–28)
- Brent / WTI: +$3–7
- Gold: +1 % or so
(Template: Syria '18, Soleimani '20, Ukraine Feb '22.)
Trading The Reaction
Here's my plan, in broad strokes:
1 – Headline shock
- Action: Sell half of each hedge (QQQ puts, oil stock calls) into the opening panic.
- Rationale: lock in gains while bid-ask spreads are still wide.
2 – Hold a back-stop
- Action: Keep the other half of both hedges in case Iran fires a meaningful follow-up salvo.
- Rationale: insurance against a second-wave escalation.
3 – Vol short (half-size)
- Trigger: Cash-VIX pops above ~27–28 and stalls.
- Action: Open half-size defined-risk short-vol position.
- Rationale: capture mean-reversion while tail-risk is still live.
4 – Buy the dip
- Action: Ladder into favorites – maybe half that day, and wait a couple of days to add more.
- Rationale: avoid catching a falling knife if Iran retaliates against the U.S.
Why This Approach Seems Right
The big If
If Iran actually lands a major blow on U.S. personnel (base, carrier, etc.):
- Next cash session – sell the remaining hedge half into peak fear, then add the second half of the short-vol trade (still defined-risk).
Bottom line: Sell a slice of the fear, keep a slice as insurance, layer into a defined-risk short-vol once panic peaks, and use the dip to buy quality while it's on sale.
If you want a heads up when I place these next trades, feel free to subscribe to the Portfolio Armor Substack.
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