"It's really caught the world's attention now. The fact that they got into Tikrit very easily. These cities are falling to very small forces and in a matter of days and sometimes in a matter of hours," said Cashin, director of floor operations at the NYSE for UBS, on "Squawk on the Street." "It looks like they're trying to circle some of the key oil-producing regions in Syria, parts of Iraq. So that's got the market's attention.
To Cashin, the market is "clearly overextended" and seems "somewhat vulnerable." Already, some nervous traders have begun a flight to safety, he said.
Read MoreOil prices head higher as Iraq tensions flare
Separately, Cashin warned that the Thursday before options expiration week has "a history of volatility."
"Don't ask me why. I'm like Christopher Columbus. I know the moon has something to do with the tide. I don't know the celestial mechanics," he said. "But if you look back, 70 percent of the Thursdays before expiration week [were] very volatile."
—By CNBC's Drew Sandholm.