Long-dated call options on the Euro STOXX 50 (Zurich: ^STOXX50E - news) could be an attractive bet for investors looking to gain some exposure to equities in an underweight portfolio, analysts at UBS (Xetra: UB0BL6 - news) write.
They note that long-dated calls are most attractive when spot is low relative to history, forward prices are low versus spot and implied volatility is low.
"Recent mini-correction presents good entry for long-dated calls, providing low risk 'placeholder' for underweight portfolios," the UBS equity derivatives strategy team writes.
"... For SX5E (EuroSTOXX 50) we are arguably in a sweet spot where vols have normalised enough to mean that calls are a viable alternative, while spot and forward prices still remain quite depressed in some regions. The impact of any large ongoing drop in long-dated vols is likely to be more than offset by a spot rally on a quite high delta, and it's hard to see rates fall much further."
They recommend spreading any such exposure across a range of regions and currencies, highlighting 5- and 10-year at-the-money calls.
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