Low implied volatility and high levels on the FTSE 100 (FTSE: ^FTSE - news) have created an attractive opportunity to bet on more gains in the British index through options, according to the UBS (Berlin: UBRA.BE - news) derivatives strategy team.
They suggest doing this via a 'call fly' structure - buying a September 2013 6,600 call, selling two 6,800 calls and, finally, buying a far out-of-the-money 7,000 call to cover the tail, for an indicative cost of around 32 points.
"This gives a net profit on expiry all the way from 6,632 to 6,968, above the 1999 (FTSE) all time high," UBS notes.
A Reuters poll last month showed the FTSE 100 - which is currently trading around 6,459 points - rising to 6,582 points by end-June and 6,750 by end-December.
Implied volatility on the index has fallen 21 percent since the start of the year. The FTSE 100, which hit 5-year highs last month, is up 5.6 percent so far in 2013.
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