Flow Traders Investment Competition: Italy finally has a government

European markets have been quite volatile after the Italian elections in March, as the Lega Nord and Five Star Movement won a significant number of votes. Investors were uncertain about the countries’ economic position, its growing debt burden and even the future of the EU. Now, Lega Nord and the Five Star Movement have formed a government, with compromise candidate Giuseppe Conte as prime minister, calming the markets for now.

However, it remains to be seen what happens in the long term, as both parties favour Italy dropping the Euro. The Eurostoxx 200 large dropped by about a percent, which does not indicate a lot of trust. Similarly, the AEX dropped by 0.65%. The S&P 500 on the other hand rose by 0.52%, indicating a minor growth in faith in the US economy. The US now has the lowest unemployment rate in about 50 years, and has also managed to get the Korea talks back on track, so perhaps you should look across the Atlantic for future investments.

In terms of the Investment Competition, something quite interesting has happened as well. The Investment Group Conquistadores Capital has, with a return of 2.49% this week, managed to rise by 15 places. This puts them 14th. Quite impressive for a group that at one point was last in the rankings. They did this by pulling off a butterfly spread strategy.

It’s a very fun and interesting strategy, and it works as follows: say the stock price is currently $10 and you think it is going to stay there. You should buy a call for $9, sell two calls for $10 and buy another call for $11. If it ends up at $10, your sold calls and bought call for $11 are worthless, and you make 1$*100 (an options contract is for 100 of the underlying) = 100$. You only have to deduct the option premium you paid. Conquistadores used this strategy on an European stock index, and as you can see it turned out nicely for them.

In terms of the top three of the competition, things seem to be getting more clear. Rising Investments is clearly leading, with Primus still behind them. Primus still needs 4.5% M2-adjusted return to become first, which they may or may not get on time. Borsa Valori is doing their best to keep their number three spot, and seem to be able to maintain it.

It won’t be too long until the competition is over. However, if you are interested in the long run, at the Investment Symposium Mark Phelps from AllianceBernstein advised us to pay close attention to the Adyen IPO. Given that it is one of the most successful Dutch companies of the past decade, you should probably have a look and see what they’re up to.

Written by Xander Gelink