​SX7E Put Sign Of Things To Come In EURO STOXX Banks in 2016

A EUR500m Dec-16 put option bought by an investor on the SX7E on Wednesday is likely a sign of the downward pressure that European banks will experience next year as they grapple with European quantitative easing, regulation and their exposure to the ‘commodity complex.’ Directional flow in the index has been overshadowed by relative value strategies that involve buying volatility swaps on the SX7E and selling the Eurostoxx 50, yet over the long-term, European banks could bounce back as the sector begins to benefit from innovative financial engineering, the increase in their Tier 1 Capital Ratio and the transfer of wealth between banking employees and shareholders.