Trade Dec23 1x2 SX5E 3,900/3,450 PS and receive 47.1pts (1.2% vs 3927.03)
Our House View outlines three scenarios for EuroSTOXX in the coming here: the central scenario predicts 4,200, and the bull and bear scenarios call for 4,450 and 3,500 respectively. As investors, we hope for the bull scenarios but worry about the bear scenario.
In this note we look at how longer expiry volatility changes across strikes, and make some interesting observations about how and when volatility surfaces really move, and how this helps us identify good hedges.
Our trade creates a hedge that pays out from very near current spot all the way down to twice our bear case down move, and we take in 1.2% for the trouble of putting this hedge on.