A joint dip in near-term European and U.S. stock volatility has not been matched further along the futures curve and investors can capture the changing spread by buying September 2013 futures in Europe and selling the same contract in the United States, BNP (Paris: FR0000131104 - news) strategists write.
The European stock volatility is based on the Euro STOXX Volatility Index , or VSTOXX, which itself is a reflection of options pricing on the underlying Euro STOXX 50 (Zurich: ^STOXX50E - news) cash index. The U.S. equivalent is the VIX , which does a similar job on the Standard & Poor's 500.
With short-term VIX volatility approaching all-time lows but longer-dated volatility steady, the futures curve there has steepened. That short-term fall may have been mirrored in VSTOXX futures but it has been accompanied by a fall at the longer end as well, which leaves the mid-part of the curve elevated.
Creating an "excellent opportunity to implement a long Europe over US" position, BNP says "the almost 'concave' shape of the V2X (VSTOXX) term structure can be explained by the event risks surrounding German elections and the expected re-election in Italy in Q3 2013."
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