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Crude oil has been in a persistent downtrend since the mid-2022 highs following the Russia–Ukraine conflict. Even the June 2025 spike during Operation Midnight Hammer proved short-lived, with prices swiftly reverting to the prevailing trend. Current price action suggests the market is not pricing in escalation risk yet.

Soybean oil has broken out of the Cup-and-Handle formation we identified in early February. With renewed momentum building in the Energy complex, edible oils stand to benefit from a sympathetic move higher.

The technology-heavy Nasdaq has come under sustained pressure, notably underperforming both the large-cap Dow Jones and the small-cap Russell 2000. The market is increasingly pricing in AI-driven disruption across sectors, with software names bearing the brunt of the repricing.

The 2-Year T-Note is testing the upper boundary of a three-year ascending triangle — a textbook bottoming pattern. A decisive breakout would imply lower front-end yields.

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Geopolitics has never been our forte, and we make no claims to expertise in the field. What we consciously try to do is view the financial markets through a probabilistic lens — not fixating on a particular asset class or narrative, but looking for opportunities with skewed risk-to-reward.

When it comes to Iran, what we've been reading suggests that we may be approaching a critical "boiling point," characterized by diplomatic impasse and an imminent threat of large-scale military conflict. The second round of U.S.–Iran nuclear talks in Geneva ended without significant progress. In recent days, President Trump has deployed a second aircraft carrier strike group to the region, accompanied by additional fighter jets. New satellite imagery also shows Iran fortifying key facilities against anticipated bunker-buster strikes. None of these developments signal de-escalation. The situation remains extremely fluid as we write this — it is entirely possible that events may have overtaken our analysis by the time readers encounter this piece. Our primary objective is to share our thought process when approaching the markets, not to make real-time calls.

As we survey market reactions, the memory of June 2025 remains fresh. In the days leading up to Operation Midnight Hammer on June 22, crude oil prices surged nearly 20% (from $65 to $78 per barrel for WTI), only to collapse back to approximately $65 on June 23 when a ceasefire was announced. The "Strait of Hormuz closure" premium that markets had priced in never materialized,  hence the sharp surge and revert.

Fast forward to today: we have begun to see some bullish movements in crude oil and related assets, but the magnitude is nowhere near that of last June. This is where we put on our probabilistic hats and grow intrigued by the energy market. We believe market participants have grown complacent, not fully pricing in the risk, which in turn offers us the kind of skewed risk-to-reward we look for as we position for an upside surprise in crude oil. In other words, if large-scale military conflict does break out in the coming days and the Strait of Hormuz is blocked, oil prices could well exceed $80 per barrel. On the downside, if this once again turns out to be a big nothing-burger, the losses are far more contained with oil still hovering around $65.

In recent weeks, the U.S. equity market has already begun to wobble amid rising volatility, as AI appears to be disrupting several industries, software chief among them. Not enough attention is being paid to geopolitics. What happens when investors wake up one morning to a full-scale military operation in the Middle East? Few are well prepared. In this regard, safe-haven assets, such as bonds, precious metals and energy, could all serve as a meaningful portfolio hedge, the kind that allows investors to sleep better at night.

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We conclude with the following hypothetical trades:¹

Case study 1: Long WTI Crude Oil futures

If we hold a bullish view towards crude oil prices, we will consider taking a long position in WTI Crude Oil (CL) futures at the current price of $66.50, with a stop-loss below $60, a hypothetical maximum loss of 66.5 – 60 = 6.5 points. If there is a large-scale military operation that causes the blockage of the Strait of Hormuz, crude oil prices have the potential to surge to $80, resulting in 80 – 66.5 = 13.5 points. Each point move in the WTI Crude Oil futures contract is 1.000 USD. E-mini (QM) and Micro (MCL) Crude Oil futures contracts are also available in 1/2 and 1/10 of the standard size, respectively.

Case study 2: Long 2-Year T-Note futures

If we hold a bullish view towards U.S. 2-Year T-Note prices (bearish yield), we will consider taking a long position in 2-Year T-Note (ZT) futures at the current price of $104,100, with a stop-loss below $103, a hypothetical maximum loss of 104,100 - 103 = 1,100 points. Looking at Figure 4, if the ascending triangle bottom breakout is confirmed, 2-Year T-Note prices have the potential to reach $108, resulting in 108 – 104,100 = 3,220 points. Each 2-Year T-Note futures contract represents a face value at maturity of $200,000, and each point move is $2,000.

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¹ Examples cited above are for illustration only and shall not be construed as investment recommendations or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Please refer to full disclaimers at the end of the commentary.

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