IV Behaviour in Energy Options Around Iran Geopolitical Events

01Study Design

Why Iran and energy options

This report examines how implied volatility behaves in energy sector options around discrete Iran-related geopolitical events. The instruments are XLE (SPDR Energy ETF), USO (United States Oil Fund), XOM (ExxonMobil), and CVX (Chevron). Together they span ETF-level sector exposure, crude oil direct exposure, and single-name equity risk. Iran is the natural focus because the Strait of Hormuz, through which roughly 20 percent of global oil trade passes, sits at the centre of Iran's strategic leverage, and the country has repeatedly used or threatened that leverage since 2003.

Fifteen events were identified across six clusters spanning March 2003 to February 2026: the Gulf War II invasion, four Strait of Hormuz incidents across 2008 to 2019, the Soleimani assassination in January 2020, four Iran-Israel direct exchanges in 2024, the Twelve-Day War in June 2025, and the February 2026 conflict. The goal was not to cherry-pick high-IV events but to catalogue the full sequence of escalation incidents and let the data determine which ones the options market actually reacted to.

The study uses 30-day constant maturity ATM implied volatility from OptionMetrics via WRDS. IV is normalised to 100 at T-20 for each event, which allows profiles from different absolute volatility regimes to be averaged meaningfully. The event window runs from T-20 to T+30 trading days. A hybrid filter removes events where no instrument moved at least 1.5 percent on the event day or the following session, confirming the market registered the event.

ℹ

USO data availability USO launched in April 2006 but OptionMetrics coverage begins in May 2007. For event 1 (March 2003), USO is unavailable and is excluded from that event's IV profile. For event 2 (January 2008), USO T-20 falls in December 2007, which is within the available window. This gap is handled transparently: the 2003 event is not excluded, and all USO gaps are noted per event.

02Event Filter

Fifteen events, eleven pass the market reaction test

The filter results carry analytical content of their own. Three events were removed for insufficient underlying moves, and one has no IV data in OptionMetrics.

#	Date	Event	Cluster	Instruments	Status
1	2003-03-20	US invasion of Iraq No instrument moved ≥1.5% on T0 or T+1.	Gulf War II	XLE, XOM, CVX	Filtered
2	2008-01-06	Iranian speedboats confront US Navy GFC contamination at T+10	Strait of Hormuz	XLE, USO, XOM, CVX	Included
3	2012-01-23	Iran threatens to close Strait	Strait of Hormuz	XLE, USO, XOM, CVX	Included
4	2019-05-12	Four tankers sabotaged off UAE T0 shifted from 2019-05-12 to 2019-05-13 (non-trading day).	Strait of Hormuz	XLE, USO, XOM, CVX	Included
5	2019-06-13	Two tankers attacked in Gulf of Oman	Strait of Hormuz	XLE, USO, XOM, CVX	Included
6	2019-06-20	Iran shoots down US RQ-4 drone	Strait of Hormuz	XLE, USO, XOM, CVX	Included
7	2019-07-19	Iran seizes UK tanker Stena Impero No instrument moved ≥1.5% on T0 or T+1.	Strait of Hormuz	XLE, USO, XOM, CVX	Filtered
8	2020-01-03	Soleimani assassination	Soleimani	XLE, USO, XOM, CVX	Included
9	2024-04-01	Israel strikes Iranian consulate Damascus	Iran-Israel 2024	XLE, USO, XOM, CVX	Included
10	2024-04-13	Iran launches 300+ missiles at Israel T0 shifted from 2024-04-13 to 2024-04-15 (non-trading day). No instrument moved ≥1.5% on T0 or T+1.	Iran-Israel 2024	XLE, USO, XOM, CVX	Filtered
11	2024-10-01	Iran ballistic missile strike on Israel	Iran-Israel 2024	XLE, USO, XOM, CVX	Included
12	2024-10-26	Israel strikes Iran directly T0 shifted from 2024-10-26 to 2024-10-28 (non-trading day).	Iran-Israel 2024	XLE, USO, XOM, CVX	Included
13	2025-06-13	Twelve-Day War begins — Israel strikes Iran	Twelve-Day War 2025	XLE, USO, XOM, CVX	Included
14	2025-06-24	Ceasefire — Twelve-Day War ends	Twelve-Day War 2025	XLE, USO, XOM, CVX	Included
15	2026-02-28	US-Israel strike Iran, Khamenei killed WRDS data ends 2025-08-29	2026 Conflict	XLE, USO, XOM, CVX	No data

Three notable filter outcomes

📋

Event 1: Iraq invasion, March 2003 XLE moved 0.98 percent and CVX moved less than 0.1 percent on the day and the day after. Energy IV had already run up in the weeks before the invasion as war became a near-certainty. By the time the invasion began, the event was fully priced. The absence of a reaction on the day is itself a finding: it suggests the options market processes geopolitical escalation gradually, not instantaneously.

📋

Event 7: Stena Impero seizure, July 2019 The maximum single-instrument move was 0.95 percent. By that date, the Strait of Hormuz escalation sequence (events 4, 5, and 6 in the preceding ten weeks) had already generated significant IV repricing. The market was fatigued by the recurring incidents and the marginal IV impact of another one was limited.

⚠

Event 10: Iran launches 300 missiles at Israel, April 2024 This is the most notable filter exclusion in the dataset. Iran's launch of over 300 ballistic missiles and drones on April 13, 2024 was the largest direct Iranian attack on Israeli territory in history. T0 was April 15 (the 13th was a Saturday). The maximum move across all four instruments on T0 and T+1 was 0.94 percent. The market appears to have read the attack as a calibrated, signalling action rather than an escalation toward sustained conflict: Iran had reportedly communicated advance warning through intermediaries, and the strike caused minimal damage. Energy IV did not reprice. This is one of the more striking findings of the study.

03Average IV Profile

The peak arrives at T+2, not T0

The average composite IV profile, normalised to 100 at T-20 and averaged equally across all eleven qualifying events and available instruments, peaks at 109.4 at T+2. The lag is consistent across the dataset: the peak is not on the event day itself but one to two sessions afterward. This likely reflects the mechanics of options repricing: market makers widen spreads immediately on the event day but the full IV mark-up takes one or two sessions to consolidate as the news is digested and new positions are established.

From T+2 the composite mean decays steadily, crossing back below 103 at T+17. By T+30 the average sits at 98.9, slightly below the T-20 baseline. This suggests a modest IV overshoot on the downside: once the fear premium fully unwinds, options are briefly cheaper than before the event.

📈

The one-to-two session lag has a practical implication An investor who enters a short vol position at T0 close rather than waiting for T+1 or T+2 may be entering before the IV peak rather than at it. The data suggests T+1 or T+2 is a better entry timing if execution flexibility exists, though the strategy tested here uses T0 close for simplicity and replicability.

Average normalised IV profile, T-20 to T+30 (composite, n=11 events)

Mean composite IV

Plus/minus 1 standard deviation

ℹ

On the confidence band The shaded band is one standard deviation either side of the mean, not a formal confidence interval. It is wide, particularly in the T+5 to T+15 window. This reflects genuine dispersion across events: some produce sustained IV elevation (the Twelve-Day War escalation, the Gulf of Oman tanker attacks) while others show rapid mean reversion (the ceasefire, the Israeli retaliation in October 2024). The average profile is an abstraction. No individual event closely resembles the mean, and the band width is a reminder of that.

04Instrument Divergence

USO leads; equity names lag and dampen

The heatmap below shows IV change from the T-20 baseline at four checkpoints across all eleven events and all four instruments. Red cells indicate elevated IV; blue cells indicate suppression. Values are composite-normalised IV minus 100, in percentage points.

Event	XLE				USO				XOM				CVX
	T0	T+5	T+10	T+30	T0	T+5	T+10	T+30	T0	T+5	T+10	T+30	T0	T+5	T+10	T+30
Iranian speedboats confront US Navy (GFC flag) Jan 07, 2008	+12.2	+7.2	+55.4	+3.6	+3.1	-1.7	+14.3	+5.8	+13.0	+13.5	+48.7	-3.5	+13.1	+12.9	+57.3	+7.2
Iran threatens to close Strait Jan 23, 2012	-22.9	-9.7	-16.6	-11.8	-7.2	-8.9	-10.1	-0.7	-7.9	+3.3	-11.9	-6.3	-9.4	-5.5	-14.6	-12.6
Four tankers sabotaged off UAE May 13, 2019	+35.6	+8.5	+18.0	+15.6	+31.1	+14.5	+34.5	+64.5	+11.7	-4.9	+6.9	+5.7	-4.8	-23.0	-13.5	-13.7
Two tankers attacked in Gulf of Oman Jun 13, 2019	+2.6	+1.6	+1.2	-17.7	+51.6	+43.3	+28.1	+9.6	+9.3	+10.4	+14.0	+1.2	+9.1	+8.9	+7.6	+0.7
Iran shoots down US RQ-4 drone Jun 20, 2019	+12.1	+11.7	-5.1	+22.9	+44.9	+29.6	+19.4	+23.7	+15.1	+18.8	-0.2	+20.9	+13.4	+12.0	+0.3	+21.0
Soleimani assassination Jan 03, 2020	-8.3	-15.5	-23.2	-3.5	-8.0	-12.4	-20.3	+6.2	+15.3	+6.1	-5.5	+19.7	+3.7	+0.7	-7.3	+5.2
Israel strikes Iranian consulate Damascus Apr 01, 2024	-1.6	+3.5	+14.8	-11.7	-15.8	+3.1	+13.6	-15.8	-1.8	+8.1	+21.4	-11.3	-0.1	+4.8	+23.0	-13.5
Iran ballistic missile strike on Israel Oct 01, 2024	+13.9	+33.6	+16.9	-2.2	+24.3	+55.8	+43.5	-4.3	+15.5	+23.3	+12.3	-6.8	+20.3	+32.6	+23.0	-11.2
Israel strikes Iran directly Oct 28, 2024	+2.3	+10.2	-12.7	-17.4	+0.6	+11.5	-8.9	-21.9	+6.0	-0.2	-15.2	-13.2	+10.9	-4.6	-24.1	-21.6
Twelve-Day War begins — Israel strikes Iran Jun 13, 2025	+14.7	+9.9	-0.6	-8.6	+50.7	+37.1	-5.7	-0.1	+18.7	+8.1	+9.4	+1.5	+16.3	+7.1	+6.6	-5.8
Ceasefire — Twelve-Day War ends Jun 24, 2025	-4.1	-11.7	-10.2	-7.1	+8.4	-11.2	-20.2	-13.1	-5.9	-13.8	-13.2	-11.4	-4.5	-8.0	+1.1	-16.5

Values are IV change from T-20 baseline (normalised to 100). Red = IV elevated above baseline; blue = IV suppressed below baseline. Event 2 T+10 spike is flagged as GFC-contaminated.

Four observations worth highlighting

🔢

USO consistently leads and amplifies USO tracks front-month crude oil futures directly and shows larger IV moves than XLE, XOM, or CVX in most events. The equity names have a partial natural hedge: higher oil prices are partially beneficial for energy producers, which offsets the geopolitical risk premium. USO has no such offset. The clearest example is event 5 (Gulf of Oman tankers): USO rose 52 pts at T0 while XLE rose only 3 pts.

⚠

Event 3 (Iran threatens Strait, January 2012): IV fell across all instruments XLE declined 23 pts below baseline by T0. The threat to close the Strait was widely read as a bluff: Iran's economy was already under severe sanctions and a prolonged closure would have damaged Iran more than its counterparties. The market repriced the threat as noise, not signal.

📈

Event 12 (Israel strikes Iran directly, October 2024): USO fell 22 pts by T+30 The market interpreted Israel's direct strike on Iranian air defences as a resolution event, not an escalation. The risk overhang of uncertain Iranian retaliation was removed by the strike itself, and IV compressed steadily from T0 onward. This is the inverse of the standard geopolitical escalation pattern.

📈

Event 14 (Ceasefire, June 2025): the cleanest IV crush in the dataset All four instruments show progressive IV decline from T0 through T+30, with USO falling 20 pts below baseline by T+10. Ceasefire and resolution events are potentially more reliably tradeable than escalation events, because the direction of IV change is more predictable. Event 12 and event 14 both illustrate this.

05Strategy

Short vol at T0 close, exit at T+20

The average IV profile describes a consistent arc: IV builds into the event, peaks at T+2, then decays toward and below baseline by T+17 to T+20. This supports a short vol mean-reversion trade: sell ATM IV at T0 close on any event that passes the 1.5 percent filter, and close the position 20 trading days later.

The 20-day holding period is derived from the sensitivity analysis below. It outperforms the T+5 and T+17 exits on both win rate and average P&L, and captures the full mean-reversion window without overstaying into the T+30 period where a small number of events show IV re-escalation.

Win rate (T+20)
90%
ex-event-2, n=10
Avg P&L (T+20)
+9.08 pts
IV points, short vol
IV peak
T+2
109.4 avg, baseline 100

Strategy backtest: short IV at T0 close, exit T+20 (IV point P&L proxy)

Win (IV fell)

Loss (IV rose)

Event 2 (GFC flag)

Cumulative (full sample)

Cumulative (ex-event-2)

Holding period sensitivity

Exit	Win rate (full)	Avg P&L (full)	Win rate (ex-ev2)	Avg P&L (ex-ev2)
T+5	73%	+1.75	70%	+1.68
T+17	45%	+6.15	50%	+6.95
T+20 best	82%	+7.21	90%	+9.08

Per-event results at T+20

Event	Cluster	IV at T0	IV at T+20	P&L (pts)	Cumulative
Iranian speedboats confront US Navy GFC flag	Strait of Hormuz	110.4	121.9	-11.53	-11.53
Iran threatens to close Strait	Strait of Hormuz	88.1	83.2	+4.96	-6.57
Four tankers sabotaged off UAE	Strait of Hormuz	118.4	115.9	+2.53	-4.04
Two tankers attacked in Gulf of Oman	Strait of Hormuz	118.2	90.9	+27.24	+23.20
Iran shoots down US RQ-4 drone	Strait of Hormuz	121.4	106.0	+15.41	+38.61
Soleimani assassination	Soleimani	100.7	123.0	-22.27	+16.34
Israel strikes Iranian consulate Damascus	Iran-Israel 2024	95.2	94.1	+1.06	+17.40
Iran ballistic missile strike on Israel	Iran-Israel 2024	118.5	118.3	+0.25	+17.65
Israel strikes Iran directly	Iran-Israel 2024	105.0	81.8	+23.15	+40.80
Twelve-Day War begins — Israel strikes Iran	Twelve-Day War 2025	125.1	101.0	+24.07	+64.87
Ceasefire — Twelve-Day War ends	Twelve-Day War 2025	98.5	84.0	+14.44	+79.31

⚠

Important: this is a conceptual framework, not a complete execution plan The P&L figures are IV-point proxies, computed as the change in normalised composite IV from T0 to T+20. They do not account for delta hedging costs, gamma risk, bid-ask spreads on straddle entry at elevated IV levels, or the dollar vega exposure of a straddle entered on a high-IV day. In practice, a short straddle entered at T0 close will carry higher dollar vega than a typical entry. The strategy requires active delta management and stop-loss discipline. The two losses in the ex-event-2 sample (events 9 and 11) both reflect cases where IV continued to build after T0, not cases where IV spiked and held: an investor monitoring the position would have seen those losses developing and had the option to exit early.

06Conclusions

Four takeaways from a small but structured dataset

1️⃣

Iran events produce a measurable but inconsistent IV response Eleven of fifteen events triggered a 1.5 percent underlying move on T0 or T+1. Three did not. One of those three (the April 2024 missile barrage) is the single largest military action in the dataset, which underlines that market reaction to geopolitical events is not proportional to the scale of the action. Context, expectation, and perceived conflict trajectory matter more than headline severity.

2️⃣

The IV peak arrives one to two sessions after the event, not on the day This is consistent across the qualifying events and has a practical implication for anyone trading options around geopolitical catalysts. Same-day entry into a short vol position may precede the peak by a session or two. T+1 or T+2 entry offers a marginally better short vol entry level, at the cost of missing the event-day move.

3️⃣

The data supports a short vol, mean-reversion strategy with a 20-day hold The T+20 exit produces an 82 percent win rate on the full eleven-event sample and 90 percent on the ten-event ex-GFC sample. The two losses are cases of continued IV build, not spike-and-hold, which in practice might be managed with a stop-loss rule. The average P&L of 7 to 9 IV points is skewed by two large winners (events 12 and 13). The median outcome is more modest.

4️⃣

Resolution events are the most reliable short vol setup Event 12 (Israeli retaliation, October 2024) and event 14 (Twelve-Day War ceasefire, June 2025) both show clean, progressive IV compression from T0 to T+30. When the market interprets an event as conflict-resolving rather than escalating, the IV decay is faster and more predictable than after pure escalation events. The practical challenge is identifying resolution events at the point of entry rather than in hindsight.

Limitations and what this study cannot claim

The sample is fifteen events over twenty-three years, of which eleven are analyzed. Many events cluster in 2019 and 2024, limiting the assumption of independence. Event 2 is contaminated by the GFC volatility regime and is excluded from the adjusted figures. Event 15 (February 2026) has no OptionMetrics data and cannot be analyzed: the WRDS cutoff is August 2025, and the post-event IV behaviour of the ongoing 2026 conflict is unknown at the time of writing.

An 82 to 90 percent win rate on ten to eleven events is a promising signal but not a statistically robust one. A broader study across a wider range of geopolitical catalysts, instruments, and time periods would be needed to claim any generalisable edge. This study is best read as a structured examination of a specific historical pattern, not as a trading signal.

⚠

Event 15 (February 28, 2026): incomplete observation The US-Israel strike on Iran and the reported killing of Ayatollah Khamenei on February 28, 2026 is included in the event catalogue as an identification. It is not included in any quantitative analysis because OptionMetrics IV data does not yet extend to that date. Its inclusion here is to document the event for completeness and to note that any update to this study should incorporate it once data becomes available.