European stock indices showed mixed results, with Germany, the UK, and Spain seeing gains, while France and Italy experienced declines. The UK FTSE 100 set a new record close at 9012.99, although it did not reach the intraday peak of 9016.36 from Friday. In Germany, the DAX closed at 24298.17, which is still 250 points below its record high of 24549.57.
Final closing levels were: German DAX up by 0.04%, France’s CAC down by 0.31%, UK’s FTSE 100 up by 0.23%, Spain’s Ibex up by 0.30%, and Italy’s FTSE MIB down by 0.36%. As the European markets wrapped up, US indices were also on the rise, with the Dow industrial average gaining 238.69 points (0.54%), the S&P index increasing by 37 points (0.59%), the NASDAQ up 150 points (0.72%), and the Russell 2000 advancing by 15.40 points (0.69%).
Netflix Share Performance
Netflix shares saw a rise of $10.52 (0.87%) to $1,219.76 after a previous decline post-earnings despite meeting revenue and EPS expectations. Shares dipped to a low of $1,198 earlier, the weakest since June 11, before recovering, still under the 50-day moving average of $1,228.77.
Given the broad gains in US markets, we see the CBOE Volatility Index (VIX) hovering near 12, which is significantly below its historical average of around 19. This suggests complacency in the market and makes protective put options on indices like the S&P 500 relatively cheap. We believe it is prudent to start buying this cheap insurance against any unexpected downturns in the coming weeks.
The mixed results in Europe, as detailed by Michalowski, reflect underlying economic divergence, with recent data showing Eurozone annual inflation holding at 2.4% while the UK’s is slightly higher. This supports a strategy of using options to play the performance gap between the record-setting FTSE 100 and the lagging French CAC. We are considering bull call spreads on UK-focused ETFs and bear put spreads on their French counterparts.
Implications of US Federal Reserve Decisions
That rally in US indices is largely tied to hopes that the Federal Reserve will cut interest rates, especially after the latest Consumer Price Index report showed inflation cooling to an annual rate of 3.4%. We expect heightened volatility around future inflation reports and Fed announcements. This makes calendar spreads on the SPDR S&P 500 ETF (SPY) an attractive way to trade the expected short-term rise in implied volatility.
Regarding the specific mention of Netflix, its bounce off a recent low while still remaining under a key technical moving average presents a distinct opportunity. We can sell cash-secured puts with a strike price below the recent $1,198 low to collect premium from the remaining uncertainty. This strategy profits if the stock holds its current levels or allows us to purchase the shares at a discount if it falls.
