Dax starts with record-breaking profits, reaching new heights amid potential challenges
In the financial landscape of Wednesday morning, the Dax and the price of a barrel of North Sea Brent crude took centre stage.
The Dax started trading with slight gains, having experienced an increase of 0.8 percent compared to the previous day's close. The European common currency strengthened, with one euro costing 1.1709 US dollars, and the oil price fell slightly, with a barrel of North Sea Brent crude costing 66.10 US dollars at around 9 am German time.
The current top four hedging positions in the form of put options will expire on Friday. These expiring put options on the DAX can influence the index’s near-term price support, acting as a kind of safety net by providing downward price floors near strike prices where put sellers may be assigned shares or look to roll positions. However, as expiration nears, the time decay (theta) accelerates, causing the value of these put options to erode rapidly, often leading many puts to expire worthless if the DAX stays above those strike prices.
Put sellers benefit from the decline in option premiums due to time decay, aiming for puts to expire worthless so they keep the premium as profit. If the DAX price approaches strike prices with large open interest in puts, these can create significant support levels because put sellers may be incentivized to defend those levels to avoid assignment, effectively acting as a "safety net" for the index. However, this safety net is not guaranteed and can fail if market volatility increases sharply or if prices drop below key strikes, resulting in sudden losses for put sellers and potential downside pressure on the index.
In the Dax, Siemens Energy, Porsche, and Commerzbank were at the bottom, while Rheinmetall, SAP, and Zalando were the leading gainers. The rise in financing costs for companies is a direct consequence of the rise in yields on 30-year German government bonds, which reached their highest level since 2011 on Tuesday. This increase in financing costs directly affects company profits.
Market expert Thomas Altmann of QC Partners stated that the Dax remains within reach of its all-time high, but he also cautioned that risks are currently being largely ignored. The strength of the common currency and the slight fall in the oil price occurred on Wednesday morning.
[1] Source: Investopedia, "Put Option," https://www.investopedia.com/terms/p/putoption.asp [3] Source: Investopedia, "Time Decay," https://www.investopedia.com/terms/t/time_decay.asp
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