Major European stock indices saw increases today and throughout the trading week. The German DAX rose by 0.29%, while France’s CAC increased by 0.40%. The UK’s FTSE 100 gained 0.13%, hitting a record high. Spain’s Ibex climbed 0.61%, and Italy’s FTSE MIB rose by 0.69%, reaching highs not seen in 17 to 18 years. During the entire trading week, these indices also reported gains. The German DAX had a slight increase of 0.02%. France’s CAC was up by 0.58%, and the UK’s FTSE 100 jumped by 2.0%. Spain’s Ibex rose by 0.78%, and Italy’s FTSE MIB experienced a rise of 1.54%. These numbers show positive trends in European markets.

Investment Strategies in European Markets

With European markets showing strength, the FTSE 100 is at a new record, and southern European indices are at multi-decade highs. A smart strategy now is to buy call options on indices like the Euro Stoxx 50 to benefit from this upward trend. This optimistic outlook is supported by new data showing that Eurozone inflation fell to 2.1% in July 2025, reducing pressure on the ECB. This good economic environment suggests selling out-of-the-money put credit spreads on indices such as the German DAX could be a solid income strategy. The European Commission’s economic sentiment indicator rose to 103.5 this month, reinforcing the idea that a major market downturn is unlikely soon. This data offers some protection for short-put positions against minor pullbacks. However, with markets at such high levels, caution is warranted. The VSTOXX, which measures European market volatility, has subtly climbed to 19.2 this week, even with the market gains. This indicates a growing demand for protection. Traders should consider buying protective put options for their longer positions, especially on the Italian FTSE MIB, which is up over 20% year-to-date.

Market Comparison and Opportunities

We recall the excitement of the market in 2007, when multi-year highs preceded a significant downturn. The current peaks in Spain and Italy, not seen for 17-18 years, remind us of that time. A wise approach would be to use collar strategies, selling an out-of-the-money call option to fund the purchase of a protective put option, safeguarding recent gains. There’s also a noticeable performance gap, with the FTSE 100’s 2.0% weekly gain significantly outperforming the DAX, which remained flat. This divergence, possibly due to recent weakness in German manufacturing data, presents a pairs trading opportunity. Strategically, going long on FTSE 100 futures while shorting DAX futures could help take advantage of this relative strength. Create your live VT Markets account and start trading now.

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