Sell Bullish Options on European Banks Index, Barclays Says Share Business Exchange
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By Jeff Kearns
Feb. 9 (Bloomberg) -- Shareholders in HSBC Holdings Plc, Banco Santander SA and other European banks should sell bullish options on the continent’s lenders because they may decline on sovereign debt risk and lower profitability, Barclays Plc said.
Derivatives strategists Abhinandan Deb and Arnaud Joubert recommended selling March calls on the Dow Jones Stoxx 600 Banks index to profit from higher prices for the contracts. HSBC and Santander are the two largest companies in the 55-member gauge, which has retreated 11 percent this year and also includes BNP Paribas, UBS AG, UniCredit SpA and Barclays.
Using a strategy known as “overwriting,” which involves selling options while already owning the underlying security, generates “superior” median monthly returns and “a better risk-reward profile to holding a long portfolio outright,” the London-based strategists wrote.
Banks have slumped this year as concern grew that widening budget deficits in Europe will slow the economic recovery. Investors have bet that Portugal, Spain and Greece may be unable to control their deficits, driving money into assets they consider safer. European Central Bank President Jean-Claude Trichet has struggled to convince investors the euro region shouldn’t be punished for Greece’s budget problems.
The strategists cited Barclays Capital’s Edmund Shing, who said in a Feb. 5 report that investors should reduce their bets on European banks, citing the potential for sovereign debt risk to spread to other countries in the region.
Calls give the right to buy a security for a certain amount by a given date. The overwriting strategy is called a “buy- write” when the investor buys stock and sells options at the same time. Both are also known as “covered call” trades.
To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Last Updated: February 9, 2010 05:08 EST
La première panacée d'un gouvernement mal géré, c'est l'inflation de la devise.
La deuxième, c'est la guerre. Toutes deux apportent une prospérité temporaire,
toutes deux apportent une ruine plus permanente".
Hemingway