## Positioning note — France protest selloff thesis
**As of Saturday, October 24, 2026.** This is a trade framework, not personalized financial advice. I’m assuming: **6–12 week horizon**, **1% portfolio max loss**, **U.S.-based investor**, and access to U.S. ETFs/options plus, if available, Eurex/CME futures. U.S. cash markets are closed; ETF marks below are from Friday, October 23.
---
# Phase A: UNDERSTAND
## 1. Thesis Parser
**Your thesis:** France’s protest crisis escalates enough to trigger a broader European market selloff.
**Parsed causal chain:**
> France protests → public-order / legitimacy shock → less credible fiscal consolidation → OAT-Bund spread widens → French banks and domestic equities sell off → euro risk premium rises → broader Eurozone equities de-rate → vol rises.
**Current facts supporting the thesis:**
- AP reports **more than 400,000 protesters across France** on October 24, with clashes in Paris, following a prior week of rioting and looting. (
apnews.com)
- French sovereign stress is already visible: the **10-year OAT-Bund spread is around 169–172 bps as of October 23**, a level associated with severe France-specific risk repricing. (
macropole.fr)
- French 10-year yields recently exceeded **5%**, with multiple reports calling this the highest since 2002 / a major warning sign for France’s public finances. (
lemonde.fr)
- The market reaction has already begun: on October 19, French markets sold off after weekend unrest; CAC 40 fell more than broader Europe, French banks were hit, and the euro weakened. (
am.jpmorgan.com)
**Important counterpoint:** this is not an undiscovered trade. The OAT-Bund spread is already near euro-crisis-era stress levels, Polymarket already prices material political risk, and euro positioning appears crowded short. So the edge must come from **a further escalation beyond current pricing**, not merely “France is unstable.”
---
## 2. Scenario Formalizer
I will use four scenarios through **mid-January 2027**:
| Scenario | Probability assumption | OAT-Bund path | Equity / FX implication |
|---|---:|---:|---|
| **De-escalation / budget progress** | 40% | 170 → 135 bps | France/Europe relief rally |
| **Muddle / already priced** | 35% | 170 → 180 bps | mild drift lower |
| **France shock escalates** | 20% | 170 → 210 bps | French banks, EWQ, FEZ down sharply |
| **Eurozone contagion** | 5% | 170 → 250 bps | broad European selloff, EUR lower, vol up |
**Key trigger levels:**
- **OAT-Bund > 190–200 bps:** thesis enters “selloff confirmation” zone.
- **France state of emergency / broader curfews:** validates protest-to-market-risk channel.
- **Budget failure / PM resignation:** validates fiscal-governability channel.
- **EUR/USD breaks below ~1.10–1.11:** confirms contagion to FX.
---
# Phase B: MAP THE BUTTERFLY EFFECT
## 3. Consequence Graph
```
Protests intensify
↓
Political legitimacy shock / security response criticized
↓
Austerity becomes harder; budget passage less credible
↓
OAT-Bund spread widens; French CDS / bank funding pressure rises
↓
French banks underperform; domestic French equities de-rate
↓
Eurozone financials and Euro Stoxx sell off
↓
EUR/USD weakens; VSTOXX / vol rises
↓
Global risk-off if markets interpret France as Eurozone fragmentation risk
```
**Most market-sensitive nodes:**
1. **OAT-Bund spread** — cleanest stress thermometer.
2. **French banks** — high beta to sovereign spread widening.
3. **Eurozone equities** — liquid expression via FEZ/EZU/futures.
4. **EUR/USD** — only reacts hard if investors see contagion, not merely local unrest.
5. **Volatility** — convex tail expression.
---
## 4. Instrument Mapper
| Exposure wanted | Clean institutional expression | Retail / ETF expression | Onchain / prediction-market expression |
|---|---|---|---|
| France sovereign stress | Short FOAT vs long FGBL | Hard for retail; use proxies | None direct on Hyperliquid |
| French equity downside | Short CAC futures / CAC puts | **EWQ puts / short EWQ** | None direct |
| Eurozone equity downside | Short FESX / Euro Stoxx puts | **FEZ / EZU puts** | Short broad risk proxy only |
| European banks downside | SX7E futures/options | **EUFN puts / short EUFN** | No clean EU bank perp |
| EUR weakness | Short EUR/USD futures | **FXE puts / short FXE / EUO** | **Short Hyperliquid EUR perp** |
| Vol spike | Long VSTOXX futures/options | VIX proxy / SPY puts, less clean | Long Hyperliquid VIX/VOL proxy |
---
# Phase C: ESTABLISH THE EDGE
## 5. Market Baseline / Pricing
**Tradable U.S. proxies as of Oct. 23 close/last trade:**
| Ticker | Exposure | Last price | Daily move |
|---|---|---:|---:|
| **EWQ** | France equities | $41.37 | -1.02% |
| **FEZ** | Euro Stoxx 50 ETF | $64.56 | -0.78% |
| **EZU** | Eurozone equities | $64.63 | -0.65% |
| **EUFN** | Europe financials | $37.72 | -0.79% |
| **FXE** | Euro ETF | $103.35 | -0.17% |
**Market already prices stress:**
- OAT-Bund spread is already around **169–172 bps**, versus much lower levels earlier in the cycle. (
macropole.fr)
- Polymarket prices **France state of emergency by Dec. 31** at about **16%**, and by Oct. 31 at about **6%**. (
polymarket.com)
- Polymarket prices **Lecornu out as PM by Dec. 31** around **24–25%**. (
polymarket.com)
- Polymarket prices **Macron out by Dec. 31** around **6%**. (
polymarket.com)
- “France passes a national budget by Dec. 31” is displayed in the low-to-mid 50s for Yes, meaning **No is roughly mid-40s**. (
polymarket.com)
**Interpretation:** the edge is not “markets are ignoring France.” They are not. The edge must be:
**current pricing underestimates the probability of a further nonlinear move: state-of-emergency / budget failure / spread > 200 bps.**
---
## 6. Historical Analog Finder
| Analog | What happened | Market lesson |
|---|---|---|
| **Yellow Vests, 2018** | INSEE estimated roughly **-0.1 percentage point** hit to Q4 GDP from the movement. (
insee.fr) | Social unrest alone often has limited macro impact unless it becomes a fiscal / political regime issue. |
| **Pension protests, 2023** | Large protests; Le Monde noted sectoral disruption, including EDF losses around €1bn. (
lemonde.fr) | Sector damage matters, but broad market impact can fade if fiscal credibility holds. |
| **French snap election shock, 2024** | CAC 40 fell about **6%** within days; French stocks and bonds sold off; OAT-Bund widened sharply. (
washingtonpost.com) | Political/fiscal credibility shocks matter more than protests alone. |
| **Eurozone crisis, 2011–12** | French spread stress reached levels now being discussed again; 2024 analysis cited the 2011 French spread peak around **189 bps**. (
invesco.com) | If France trades like a periphery-fragmentation problem, equity downside can become nonlinear. |
**Conclusion from analogs:** your thesis works best if protests become a **budget / governability / sovereign-spread shock**, not merely another French protest cycle.
---
## 7. Response / Beta Estimator
Rule-of-thumb shock betas from recent and historical episodes:
| Shock variable | Estimated market response |
|---|---|
| **+10 bps OAT-Bund widening** | CAC / EWQ roughly -1% to -2% in shock weeks |
| **+10 bps OAT-Bund widening** | French / European banks roughly -2% to -4% |
| **France-specific stress only** | EUR/USD reaction modest |
| **Spread > 200 bps / contagion** | EUR/USD can fall 2–5%, Euro Stoxx can fall 7–15% |
| **Policy relief / credible budget** | Short-France trades can reverse quickly |
---
## 8. Trade Backtester
I modeled a **short basket** using:
- 25% EWQ short
- 40% EUFN short
- 15% FEZ short
- 20% FXE short
Scenario return estimates:
| Scenario | Basket return |
|---|---:|
| De-escalation | -5.2% |
| Muddle | +2.0% |
| France shock escalates | +9.4% |
| Eurozone contagion | +18.7% |
Using my probabilities above, this has roughly **+1.4% expected return per dollar of gross notional**, but with meaningful reversal risk if authorities stabilize the situation.
I also modeled a **defined-risk option package** using January 2027 put spreads:
| ETF | Structure | Model debit / contract | Max payout / contract |
|---|---|---:|---:|
| EWQ | Jan 39 / 35 put spread | ~$71 | $400 |
| EUFN | Jan 36 / 30 put spread | ~$114 | $600 |
| FEZ | Jan 61 / 55 put spread | ~$92 | $600 |
Model assumptions: 84 days to expiry, 4% rate, estimated IVs of 22–30%. These are **not live option-chain quotes**.
For a $100k account, sample package:
| Position | Contracts | Approx premium |
|---|---:|---:|
| EWQ Jan 39/35 put spread | 4 | ~$283 |
| EUFN Jan 36/30 put spread | 2 | ~$228 |
| FEZ Jan 61/55 put spread | 2 | ~$185 |
| **Total premium** | | **~$696** |
Scenario P/L:
| Scenario | Expiry payoff | P/L |
|---|---:|---:|
| De-escalation | $0 | -$696 |
| Muddle | $0 | -$696 |
| France shock escalates | ~$1,535 | +$840 |
| Eurozone contagion | ~$4,000 | +$3,304 |
**Edge test:** the option package needs roughly **>34% probability** of a decisive downside move before expiry to be positive EV on my assumptions. My base-case bad-event probability is only 25%, so I would treat this as a **convex hedge / asymmetric expression**, not a high-certainty expected-value trade unless your conviction is materially stronger than mine.
---
# Phase D: BUILD THE TRADE
## 9. Expression Selector
**Best clean expression:**
### Short France / European financial stress, with defined risk.
I would **not** express this as a huge naked short. The trade is crowded, and if the government calms protests or a budget path emerges, French assets can rip higher.
**Preferred structure:**
1. **Core convex trade:** EWQ + EUFN + FEZ put spreads.
2. **Tactical liquid overlay:** short FXE or short EUR/USD only if EUR breaks support.
3. **Institutional / futures alternative:** short FOAT vs long FGBL to directly trade France-Germany spread widening. Eurex lists **Euro-OAT futures as FOAT** and **Euro-Bund futures as FGBL**, each tied to long-term sovereign bonds. (
eurex.com)
---
## 10. Basket Optimizer
For a $100k portfolio with **1% max risk**, I’d use:
### Portfolio A — defined-risk options, preferred
| Leg | Trade | Risk |
|---|---|---:|
| EWQ | Buy Jan 39/35 put spreads | ~$283 |
| EUFN | Buy Jan 36/30 put spreads | ~$228 |
| FEZ | Buy Jan 61/55 put spreads | ~$185 |
| Cash reserve | Leave unused or add on confirmation | ~$304 |
| **Total max loss** | | **~$696 / 0.70% NAV** |
This leaves room to add if OAT-Bund closes above 190–200 bps.
### Portfolio B — outright short basket, higher path risk
For 1% risk and a stop around **4% basket loss**, gross notional should be about **$25,000**:
| Leg | Weight | Notional |
|---|---:|---:|
| Short EWQ | 25% | $6,250 |
| Short EUFN | 40% | $10,000 |
| Short FEZ | 15% | $3,750 |
| Short FXE / EUR | 20% | $5,000 |
| **Gross** | 100% | **$25,000** |
I prefer **Portfolio A** because it survives relief rallies and weekend headline gaps.
---
## 11. Risk & Sizing
**Risk budget:** 1% NAV.
**Entry plan:**
- Put on **50–70% now** if you need immediate exposure.
- Add the rest only if:
- OAT-Bund closes above **190 bps**, or
- France state-of-emergency odds move above **25%**, or
- FEZ/EWQ break recent lows on rising volume.
**Stops / invalidation:**
Exit or reduce if:
- OAT-Bund closes below **145–150 bps**.
- France passes a credible budget path.
- Protest participation fades and Polymarket state-of-emergency odds fall below **8–10%**.
- EWQ rallies above the pre-shock breakdown area.
**Take-profit framework:**
- Take partial profits if OAT-Bund hits **200–210 bps**.
- Take more if EUFN falls **10–15%**.
- Keep a tail if France enters a formal state of emergency or budget failure scenario.
---
# Phase E: ACT
## 12. Trade Proposal / Execution Layer
### My final proposed trade
**For each $100k portfolio:**
1. **Buy 4 EWQ Jan 39/35 put spreads**
2. **Buy 2 EUFN Jan 36/30 put spreads**
3. **Buy 2 FEZ Jan 61/55 put spreads**
4. Keep ~$300 risk budget unused for add-on.
**Why this structure:**
- It targets the right chain: France → banks → Eurozone equities.
- It caps loss below 1% NAV.
- It has 4–5x max payout on premium if selloff becomes nonlinear.
- It avoids unlimited risk from a policy-relief squeeze.
**If using futures instead:**
- Institutional clean trade: **short FOAT / long FGBL** duration-matched.
- Equity overlay: short **Euro Stoxx 50 futures** or buy puts.
- FX overlay: short **EUR/USD**, but only if contagion appears.
---
# Hyperliquid and Polymarket check
## Hyperliquid: what to trade there
Hyperliquid does **not** appear to offer a clean CAC 40, Euro Stoxx, French OAT, Bund, EWQ, FEZ, or EUFN perp in the current market list. Its available relevant proxies include **EUR**, **DXY**, **SP500**, **VIX**, **VOL**, **GOLD**, **TLT**, **ASML**, and **NOK**. (
hyperliquidguide.com)
**Best Hyperliquid expressions:**
| Trade | Direction | Why |
|---|---|---|
| **EUR perp** | Short | Cleanest onchain proxy for France → Eurozone contagion. |
| **DXY perp** | Long | Broader USD risk-off expression. |
| **VIX / VOL** | Long | Captures global vol spillover, not France-specific. |
| **SP500** | Short, small | Only if you think Europe shock becomes global risk-off. |
| **ASML / NOK** | Short, small | European equity proxies, but weak France-specific linkage. |
Hyperliquid leverage can be high: one current guide shows **xyz:EUR up to 50x**, but I would use **1–3x max** for this thesis because weekend political gaps can liquidate overlevered perps. (
cipher-intelligence.io)
**Hyperliquid implementation:**
- Short **xyz:EUR** with 1–2x leverage.
- Add small long **VIX/VOL** only if European equities start breaking lower.
- Do **not** force a large SP500 short unless contagion is visible.
---
## Polymarket: what to trade there
Important: Polymarket pages indicate that **trading is blocked in the U.S. on polymarket.com**, directing U.S. users to Polymarket US. Since you are likely in the U.S., check whether the same markets are legally available on Polymarket US before trading. (
polymarket.com)
Relevant markets:
| Market | Current rough pricing | Trade for your thesis |
|---|---:|---|
| **France declares state of emergency by Dec. 31** | ~16% Yes | Buy Yes if you think unrest escalates. |
| **France declares state of emergency by Oct. 31** | ~6% Yes | Small tail ticket only. |
| **Will France pass a national budget by Dec. 31?** | Yes low-to-mid 50s | Buy **No** if fiscal crisis is core to thesis. |
| **Lecornu out as French PM by Dec. 31** | ~24–25% Yes | Buy Yes as political-instability leg. |
| **French election called by Dec. 31** | ~6–7% Yes | Cheap tail, but low probability. |
| **Macron out by Dec. 31** | ~6% Yes | Very convex but extreme; only tiny sizing. |
| **Le Pen / 2027 election markets** | Le Pen around 46% in one tracker | Longer-horizon political-risk expression, less direct to near-term selloff. |
Sources: Polymarket state-of-emergency market, budget market, PM market, election-called market, Macron-out market, and France 2027 election odds. (
polymarket.com)
**Best Polymarket basket for the thesis:**
- Buy **Yes: France declares state of emergency by Dec. 31**.
- Buy **No: France passes budget by Dec. 31**.
- Buy **Yes: Lecornu out by Dec. 31**.
- Tiny tail: **Yes: Macron out by Dec. 31** or **French election called by Dec. 31**.
**Sizing:** keep Polymarket exposure small, e.g. **10–20 bps of NAV total**, because these markets can be binary, illiquid, and settlement-rule sensitive.
---
## Bottom line
I would express your thesis with **defined-risk downside convexity**, not a large naked short.
**My preferred trade:**
**EWQ + EUFN + FEZ January put spreads**, max loss under 1% NAV, add only if OAT-Bund pushes through 190–200 bps.
**Best Hyperliquid expression:**
Short **EUR** perp, small size, low leverage; optionally long VIX/VOL.
**Best Polymarket expression:**
Buy outcomes linked to **state of emergency**, **budget failure**, and **PM instability**, subject to U.S. availability and market rules.