- At range highs. Probability of another range break out on the back of continued US equities strength
- High proportion of sectors that have underperformed since Liberation day sell off. Energy, Materials, Pharma
- 2M upside volatility is attractive to play the upside. 2M 110% Vol at 2YPc8
We revisit our previous FTSE trade idea and see another high probability of a range break out for the index on the back of the ongoing global equity market advance. Stronger US hard data paired with low institutional exposure to equities on the back of tariff induced recession fears appear to be leaving a lot of institutional investors behind the current move risking an upward spiral in equity levels as the market repositions for further cyclical improvement.
The FTSE100 remains an attractive choice to play the upside due to 1) its high US exposure and 2) the highest exposure to lagging sectors amongst the major EU regional indices. The index has a combined c.30% exposure to Energy, Materials and Pharma that have underperformed the post liberation run up, on ongoing recession fears for Energy and Materials, and unfriendly Trump policies for Pharma. The UK has broadly finalized its trade agreements with the US, while trade talks with the EU are still ongoing, posing less tariff headline risk that could put a cap on price. In terms of valuation, the FTSE still remains one of the cheapest of the European regional indices, with a PE of 13x, with one of the deepest discounts to analysts’ target prices (12% upside). 2M 110% IV is particularly low at a 2YPc8 making it attractive to add delta. We propose long FTSE 100 Aug25 9000 calls at 0.98% of underlying. (Spot ref 8800, Fut ref. 8817).