The recent calm in the stock market despite rising geopolitical tensions has left options traders in a difficult position: sell volatility while risking being blindsided if the Middle East conflict escalates, or buy it and risk bleeding away premiums as actual moves remain subdued. The situation is about to become even more tense following the US attack on Iranian nuclear sites.
While oil prices are likely to be the biggest indicator of reaction to the escalating conflict, equities may experience an initial surge in volatility as traders try to assess the risks. Oil has surged 11% since Israel launched airstrikes on Iran a week ago and its crude volatility is now at levels not seen since Russia’s invasion of Ukraine in 2022. In contrast, the S&P 500 Index has fallen just 1.3%.
Source: https://www.bloomberg.com/news/articles/2025-06-22/options-traders-wrestle-with-stocks-muted-reaction-to-war-risk