FEXDZ2021 trade ideas
DIVIDENDS SX5E -HOW TO SHORT EUROPE WITHOUT PLEDGING YOUR HOUSE Hello guys,
today I wanna talk about a cheap way to short the market, or to be insured againts a drop, without be forced to spend a lot of money (try to short spx or sx5e or even buy a put option with a 1year maturity...) or leave a huge amount freezed for months as margin.
This is the future on dividends of 50 biggest companies in Europe. If they go well, they pay dividends, if they do not, they may put them on hold. Buying a put on this is actually an indirect way to bet on a downturn in the market, with the feature that it is really cheap as not many people look for alternative things. THERE IS NOT ONLY SPX or SX5E guys, we have to be creative. Well, this futures expire on Dec 20, but of course majority of dividends are determined and payed in the first 5-6 months of the year, so let's take June 20 as the effective expiry date.
Well, as of a couple of weeks ago nly 16 out of the 125 value divivends were delibered and payed: this leaves space for a great profit down. Also because the FEXDZ2020 was still priced considerably higher that the 2021 one. It was still at 115 when the 2021 was at 100 or below, meaning that investors did not think plausible to have an effect on dividends this year, even with a production shutdown ongoing.
Why? Because a scenario like that never happened so they think it will never do. I THINK THEY ARE WROONG. Cancel or decide to suspend dividends on a broader base (not only 1-2 companies) is something that never happened (at least as far as I remember) in the history of sx5e and this is why this future . If the virus goes on like this, and countries will suspend production for 1 month or so, I really think that this future could go to 50-60, meaning that half of the companies won't pay their dividends or decide to cancel their decisions. Italy already lost 6% of the GDP this year with a 2 weeks quarantene (only 1 week of shutdown though), so it is not a crazy scenario. Even if not that apocalyptic occurrance, I think that the 84.5 level which acts a support from 2016 can be reachable.
I entered at 125 last year (sorry I was not that active on TV back then) and until two weeks ago the options were worth 0. This was supposed to be as a mere insurance for my long position to help me in case of a recession (we already said that). My take profit zone was the green rectangle (fibo extension of the leg down), but since we are witnessing something exceptional i Think this is still a good and cheap moment to enter this trade if you wanna short european stock market or insure your long portfolio.
Cheers
