Saturday 16 December 2017

Cost of protecting options dips

Cecile Vannucci

THE cost of options protecting against European stock losses slid the most since 2009 last year as the central bank's commitment to stimulus helped drive the region's equities to a 19-month high in December.

A measure of Euro Stoxx 50 Index options' prices, known as the VStoxx Index, sank 34pc in 2012 as the gauge of the 50 biggest euro-area companies climbed 14pc, according to data compiled by Bloomberg. The broader Stoxx Europe 600 Index reached the highest level since May 2011 on December 20.

The ECB unveiled a bond-buying programme in September, pledging to spend as much money as needed to restore confidence in debt markets.

That helped send the Stoxx 600 to its highest valuation in nearly three years. Shares rallied on Wednesday as US politicians passed a budget bill that avoided most scheduled tax increases threatening a recovery in the world's largest economy.

"The market is comfortable to trust the ECB to do the necessary," said Veronika Pechlaner, who helps manage about $1.6bn (€1.2bn) at Channel Islands-based Ashburton.

The Stoxx 600 jumped 2pc on Wednesday to its highest level since February 2011. The European stocks index trades for 19 times its companies' reported earnings, the highest since March 2010. (Bloomberg)

Irish Independent

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