Article / 06 March 2017 at 15:14 GMT

Volatility Update: EU elections and the Euro Stoxx 50 — #SaxoStrats

Product Manager, Options Trader, Educator
  • Equities head for new heights led by healthcare, industrials
  • VIX hit $12.92 on Tuesday before retracing lower
  • Snap is trading and the CBOE is set to list options this week

By Georgio Stoev 

Equities have continued their grind higher globally. The rally was infused by yet another Trump narrative, this time in the form of a speech made in front of both a teleprompter and the US Congress on February 28. 

Again, investors (mostly institutional) responded positively and put more cash to work. According to Bank of America Merrill Lynch, some $8 billion found its way into the S&P 500-tracking ETF (SPY) on Wednesday alone. 

E-mini S&P 500 (ESH7):
Source: Saxo Bank
The rally was led by healthcare and industrial stocks, which gained 1.6% and 1% respectively for the week. European equities are also performing well despite increased uncertainties about the national elections in The Netherlands and France. 

Overall, the euro area is starting to look attractive again with lower valuations in equities, some pickup in growth, and declining unemployment. Year-to-date, the Euro Stoxx 50 (FESXH7) is still trailing the E-minis by 2%, however European equities have outperformed their US peers over the last three months. 

Euro Stoxx 50 (FESXH7):
Source: Saxo Bank

Our soon-to-be regular webinar guest Russell Rhoads of the CBOE noted in his weekend commentary that there seems to be an excess premium in VSTOXX futures. The highly regarded volatility expert hints that there might be a divergence between Euro Stoxx 50 volatility and that of the VIX. 

We could certainly see the pricing tick upwards in the futures contracts for the Euro Stoxx 50...

VSTOXX futures (April versus May):
Source: Saxo Bank

For more on the topic, please tune in this Wednesday afternoon and hear from "Dr. VIX" himself as Rhoads discusses trading the CBOE volatility index.

Other markets of interest:

Source: QuikStrike

Trade idea

Natural gas is on the rebound after making a six-month low at $2.52 mmBtu. As of this writing, a vertical spread involving 2.90/2.95 following the underlying for April delivery (ONJ7) is priced in at roughly $2.47/contract with breakeven at $2.924, while the futures are at $2.901. 

Have a great week ahead!

— Edited by Michael McKenna

Georgio Stoev is futures and options product manager at Saxo Bank
Market Predator Market Predator
Hello Georgio, just for my education. Is this the correct way how to measure YTD (see my picture below)?
Or do you measure it from different time, so your percentage axis has positive offset (picture with black background from GO)? Maybe start is from reporting day, or so....?
Additional info + video:
Thanks, MP.


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