European indices mostly rise due to gains in Italy and France, while Germany experiences a slight decline
by VT Markets
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Aug 12, 2025
European Market Analysis
European markets show a clear divide, creating a trading opportunity. The German DAX is underperforming, likely due to recent PMI data from late July 2025, indicating a continued decline in manufacturing. Meanwhile, France and Italy are gaining ground. This pattern suggests a pairs trade: consider buying CAC 40 call options and simultaneously purchasing puts on the DAX to capitalize on this divergence.
In the United States, a broad market rally is underway, and confidence is rising, particularly with the Russell 2000 small caps jumping over 2%. This surge is driven by the early August 2025 CPI report, which came in at a manageable 2.8%, easing worries about central bank actions. It may be wise to buy call options on the S&P 500 or Russell 2000 to benefit from this positive market sentiment through the month’s end.
Volatility and Hedge Strategy
We need to keep a close eye on volatility as we approach the typically stormy month of September. The CBOE Volatility Index (VIX) is currently around 14, which is low compared to the spikes seen during the 2024 election cycle. Investing in VIX futures or long-dated call options could be an inexpensive way to hedge against potential surprises in the autumn market.
Given the impressive rise in U.S. indices, with the Dow surpassing 44,000, caution is important. We should consider adding some downside protection. Buying protective puts on major indices like the SPX for the fourth quarter can help secure the significant gains we’ve achieved this year.
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by VT Markets
Aug 12, 2025
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