Major European indices rose both on the day and over the trading week. The German DAX increased by 0.29%, while France’s CAC saw a rise of 0.40%. The UK’s FTSE 100 gained 0.13%, reaching a record high. Additionally, Spain’s Ibex climbed 0.61%, and Italy’s FTSE MIB rose by 0.69%, reaching highs not seen in 17 to 18 years.
Throughout the trading week, these indices also showed gains. The German DAX had a marginal increase of 0.02%. France’s CAC rose by 0.58%, while the UK’s FTSE 100 jumped by 2.0%. Spain’s Ibex was up by 0.78%, and Italy’s FTSE MIB experienced a rise of 1.54%. These increases reflect positive movements across the markets in Europe.
Investment Strategies in European Markets
Given the broad strength across European markets, we see the FTSE 100 hitting a new record and southern European indices at multi-decade highs. The immediate strategy is to consider buying call options on indices like the Euro Stoxx 50 to ride this upward momentum. This bullish sentiment is underpinned by recent data showing Eurozone inflation cooled to 2.1% in July 2025, easing pressure on the ECB.
This positive economic backdrop suggests selling out-of-the-money put credit spreads on indices like the German DAX could be a viable income strategy. The latest European Commission economic sentiment indicator, which rose to 103.5 this month, supports the view that a significant market downturn is less likely in the near term. This data provides a buffer for short-put positions against minor pullbacks.
However, with markets at such elevated levels, signs of caution are emerging. We’ve seen the VSTOXX, Europe’s main volatility index, subtly climb to 19.2 this week despite the market gains, indicating rising demand for protection. Traders should consider buying protective put options on their most extended positions, particularly on the Italian FTSE MIB, which is up over 20% year-to-date.
Market Comparison and Opportunities
We remember similar market euphoria during the run-up in 2007, where multi-year highs preceded a significant correction. The current highs in Spain and Italy, unseen for 17-18 years, echo that period. A prudent move would be to implement collar strategies, where one sells an out-of-the-money call option to finance the purchase of a protective put option, locking in recent gains.
There is also a clear performance gap, with the FTSE 100’s 2.0% weekly gain far outpacing the DAX’s flat performance. This divergence, possibly linked to recent weakness in German manufacturing output figures, presents a pairs trading opportunity. We see merit in going long FTSE 100 futures while simultaneously taking a short position in DAX futures to capitalize on this relative strength.
