Everyone dealing with Euro expecting ECB to increase easing volumes, but for now it seems unlikely that the QE volume has to be increased to € 70, 75 or 80 billion and the deposit rate is lowered by 10, 15 or 20 bps.
Euro's volatility is speculating ahead of these significant economic policies, EURGBP's implied volatility of ATM contracts is expected to be perceived at 12.5% for 1w expiries of this the pair.
NPV of ATM put is at 456.66 while Premiums trading above 15.13% at GBP 525.80 for lot size 100,000 units.
Thereby, comparing this difference in options premiums and NPV with implied volatility in market sentiments we think the hedging cost would not be economical on downside deploying ATM put instruments.
Thus the alternative is that, in forwards markets at least..?, Subsequently, here comes the strategy arbitrage strategy in which options trading that can be performed for a riskless profit as EURGBP ATM call options are overpriced relative to the underlying exchange rate of EURGBP.
To perform this conversion, the hedger holds the underlying spot FX and offset it with an equivalent synthetic short spot FX (long put + short call) position.
Profit is locked in immediately when the conversion is done, the profit would be strike price of call/put - purchase price of underlying + call premium - put premium.


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