Week of Losses Is No Turn Off To German Bulls In Options Market
Roxana Zega Writes:
Last week?s decline in German equities did little to quell the spirits of bulls in the options market.
They?re paying the most ever for options to buy the DAX Index, compared with the price of bearish contracts. Investors added more than $67 million to an exchange-traded fund tracking the gauge last week, even as the index dropped 2.8 percent.
The bets echo broader optimism about European stocks, which are heading for their best summer ever after clients of mutual funds sent more than $10 billion of fresh cash to managers since the start of July. Traders are speculating that European Central Bank stimulus and a weaker euro will boost corporate profits. All 11 strategists following the DAX that Bloomberg tracks predict gains for German stocks, with Nomura Holdings Inc. forecasting a 20 percent jump by December.
?Even if the DAX does weaken a bit on the short term, people are feeling that the benefit of a weaker euro to corporate profits will be significant enough to reward them,? said William Hobbs, head of investment strategy at Barclays Plc?s wealth-management unit in London. ?The DAX still looks interesting.?
The German gauge trades at 14.2 times estimated earnings of its members, near its lowest level since November relative to the regional Stoxx Europe 600 Index. With the nation being the biggest European trade partner with the U.S., it is more sensitive than others to currency fluctuations, and forecasters see the euro weakening against the dollar even further.
The DAX fell 2.6 percent on Monday.