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Brief wrap-up: tactical (flows) vs strategic (macro) 16 July 2009
Nothing new on the macroeconomic front, with very good figures in China (GDP +7.9%, and 7.37 trillion in loans to the economy in H1, but a CPI -1.7% and PPI -7.8%).
And bad figures in Europe, with an HCPI in France -0.6% y-o-y in June, and retail sales in the Netherlands -8.9%, versus expectations of -4%.
On the micro front, CITappears to be on the brink of bankruptcy, but JP announced excellent results, which continues to prop up stock market indices and drag on interest rate futures.
That doesn't seem to be hurting the option positions still in our list, since for the first time in a long while, there is just one delta negative call ratio (yes, that's right!) on the Schatz.
And for the first time since March, a delta positive strategy (yes!) on the Eurostoxx, with July 2400 calls bought Monday for calls €6.
This positioning is tactical, and does not reflect a change in our core macroeconomic scenario, but as Mr Grantham (NYSEMKT:GMO) so correctly pointed out, don't confuse the direction of GDP with that of stock market indices, at least in the short run.
Check out his latest analysis link: It is the only intelligent bull equity market text I have read in a very long time.
- Neutral on interest rates on eurozone government debt. We have eclipsed our initial 1.25% interest rate target on German generic debt. Unfortunately, hitting our goal of 1% would imply other dislocations which we hope will not occur.
We advise clients to begin shifting to longer durations in bull flattening positions.
- Neutral to negative on stock market indices. but virtually all options positions have been cleaned out (expiry too close). We are studying with our clients the opportunity of re-establishing portfolio fund hedging strategies on August options.
In this contedt, the July calls are beginning to burn our fingers, but it's ready, it's ready….
- Still Negative euro against the dollar.
Once again, this looks unplayable on a tactical level, given the appetite for risky assets. And yet, what a difference in macroeconomic outlooks!
Call spread 107.30/107.90 August 1 by 2:32, delta -60%, long theta 0.80 (P&L +26).
Call 2400 July:70, delta +90%, theta 5 (P&L +64).
Asset allocation and option strategy