Article / 24 June 2016 at 12:59 GMT

Captain’s log: An insane day in Europe

Head of Equity Strategy / Saxo Bank
  • Saxo equities desk seizes on 'exceptional' post-Brexit mispricing
  • Repsol trade saw 12% of gains in a matter of minutes
  • Total portfolio gains for the day sit at 14%

Equities trade
Today's early European session saw the streets of Europe's financial districts 
awash with red ink, creating trading opportunities across sectors. Photo: iStock 

By Peter Garnry

As you know, we had placed some small directional bets based on a Remain scenario such as long Nikkei 225 (JP225.I) and UBI Banca (UBI:xmil). When the outcome of the UK referendum was clear a couple of hours before the start of the European equity futures trade, however, we quickly changed gears in our portfolio and conducting rapid intraday trading in 21 instruments in the first 90 minutes of European cash equity trading. 

We could not send out trading ideas out to clients at that speed as we had to seize the opportunityto take advantage of the exceptional levels of mispricing. We did circulate our activity ad hoc on emails to clients.

Our first position was aggressively adding a large exposure in STOXX 50 (EU50.I) in the area 2,675-2,700 immediately taking our portfolio from gross exposure of around 100% and net exposure of 7% to around 200% gross and 107% net.

When the cash market opened our first aggressive trade was in Repsol (REP:xmce) that opened 18% down despite energy stocks in Asia on average were only down 2-4% This was the first gross mispricing in the European equity market. 

We immediately bought large exposure and the stock rebounded 12% in 13 minutes. That made us smell blood in the streets...

Repsol (one-minute chart):
Repsol intraday

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Source: Saxo Bank

When the UK banks opened down 30-35%, we immediately copied our Repsol trade in Barclays (BARC:xlon) and Royal Bank of Scotland (RBS:xlon).

All instruments provided a gain to our portfolio except a loss in Lloyds Banking Group (LLOY:xlon). Our biggest P/L gains were STOXX 50 (EU50.I), Michael Page (PAGE:xlon), Barclays (BARC:xlon), Peugeot (UG:xpar), Bellway (BWY:xlon), and BMPS (BMPS:xmil).

Our portfolio is up 14% today.

Our trading was so aggressive that we went from around 107% gross exposure to around 400% in less than an hour. When trading and the noise settled in the market, we scaled out at around 0845 GMT closing all intraday speculative positions. However, we kept our core trades so the portfolio when back to being almost neutral.

More opportunities will arise on Monday but for now we will keep the powder dry and reassess the strategy over the weekend.
Portfolio positions
Source: Saxo Bank 

The full table with data on our equity positions can be found in the attached PDF.

— Edited by Michael McKenna

Peter Garnry is head of equity strategy at Saxo Bank

Download document

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