Trading Italy vs UK volatility

The spread of implied volatility between Italian and UK equities (FTSEMIB vs FTSE100) is too high, according to Tristan Abet, Cross-Asset Strategist at Louis Capital Markets.

Abet says that on derivatives markets the FTSEMIB is still perceived as a high beta, more risky index, whilst the reality is that this ratio FTSEMIB/UKX is trending upwards.

As such, he recommends selling a September 2015 Put at 21500 on FTSEMIB and hedging it by buying a September 2015 Put at 6075 on UKX. This strategy, he says, aims at receiving premium with very limited risk and constitutes one of Louis Capital Markets’ highest conviction trades for the summer.