Event Residuals, Sector Hedging, and Option Protection: Professor Alessandro Conti Explores Trading Paths Amid Market Volatility
On April 14, 2025, the FTSE MIB index surged by 2.8%, closing at 35,007 points, following U.S. President Trump announcing to temporarily exempt smartphones and computers from tariffs. However, this "exemption" is not a genuine policy reconciliation but rather an optimistic release of structural mismatches. Trump later warned that semiconductor tariffs would be announced next week, with China still excluded from the easing list. Professor Alessandro Conti pointed out that this "initial easing, followed by risk release" behavior pattern poses challenges to quantitative trading systems.
Asymmetric Signals of Policy Deferment and the Construction Logic of "Event Residual Factors"
Traditional trend-following or macro-positive models may make erroneous judgments under asymmetric policy expectations. Professor Alessandro Conti proposed constructing "Event Shock Residual" (ESR) factors to estimate whether current price reactions deviate from average market behavior post-policy implementation.
Specifically, the ESR model can be based on:
Frequency and sentiment bias of media reports (extracted via NLP)
IV Skew and Gamma exposure in the option market within the policy event window
Excess returns comparison of historical similar events across FTSE MIB sectors
Professor Alessandro Conti suggests integrating ESR into the main strategy weight system and linking it with changes in the implied volatility surface to form a "trading signal attenuator", preventing premature positioning or directional mismatches during event volatility. He emphasized: "In political trading, the primary lesson for models is to learn to wait—not predict."
Layered Construction of Sector Hedging Paths: From Surface Synchronization to Fundamental Hedging
Gains of the day covered three major sectors: banking, automotive, and energy, with UniCredit (+4.0%) and Intesa Sanpaolo (+2.7%) leading the rise; Telecom Italia and Unipol rose over 5%. Professor Alessandro Conti believes that this widespread structural rise hides significant hedging modeling opportunities.
He noted that valuation elasticity differences between sectors during macro-event-induced structural rebounds provide a natural window for constructing sector hedging strategies. The banking sector rise is due to the narrowing of European bond spreads and liquidity optimism, while the automotive sector (like Stellantis) relies on U.S. market supply chain stability—indicating higher vulnerability to future semiconductor tariffs.
Professor Alessandro Conti recommends designing a "Beta Neutral + Fundamental Hedging" strategy:
Construct an industry pair basket of "banking long + automotive/energy short", controlling net exposure within ±5%
Use Brent/WTI pricing and Eurozone spread trends as dynamic weighting signals
Set volatility anchoring mechanisms for banking sector exposure (based on Realized Vol / Implied Vol Ratio)
Additionally, the strong rebound of low Beta stocks like Telecom Italia and Unipol shows a "defensive asset counter-trend momentum" structural feature. Professor Alessandro Conti suggests modeling cross-sectional reversal momentum strategies for such assets: going long on low Beta momentum continuations when high Beta sectors peak and retreat, forming trading boundaries with "lagged continuation".
Hedging Time Windows and Policy Delay Defense Mechanisms at the Option Level
With clear indication by Trump of announcing semiconductor product tariffs next week, the market entered a distinct "news delay window". Italian tech heavyweights like STMicroelectronics saw short-term gains but were exposed to negative outlooks. Professor Alessandro Conti warns that this phase of "delayed negative release" is ideal for deploying option hedging strategies.
Professor Alessandro Conti designed a "Policy Delay Impact Window Model" to identify asymmetric opportunities in option structures during such events, including:
Significant deviation in short-term options (7-14 days) implied volatility rise (IV > HV)
Increased volume of OTM put options + concentrated distribution of transaction prices
"Tech VIX" exceeding expectations in cross-asset volatility regression models
He recommends the following actions for exposed stocks like STMicroelectronics:
Establish low Delta put option protection positions (cost-controllable)
If volatility rises further, consider constructing Bear Put Spread hedging structures
If event timing is clear, close positions 1-2 days in advance to lock in option Gamma gains
Professor Alessandro Conti particularly notes that this strategy should not be limited to individual stocks but can also be used for industry volatility hedging basket designs under event windows, such as semiconductors + high-end manufacturing + ICT service assets.
From a technical perspective, the April 14, 2025 rise provided a structural repair signal for the market; however, from a quantitative perspective, it was a highly risky "event response testing ground". Through strategies like "Event Shock Residual (ESR)", "Sector Hedging Structure Reconstruction", and "Delay Impact Window Modeling", Professor Alessandro Conti offers a systemic framework to address the current political-market asymmetric cycle. He reminds all strategy model constructors: "If you cannot control the time dimension of risk, you cannot define the spatial boundary of returns."