BoE MPC adds cushion for sterling, mint profits on sideways

After elections, now it is MPC who shapes the table for sterling's profits although it is trading on sideway.

The Bank of England's Monetary Policy Committee voted to maintain the recently released bank rate at 0.5% at its May 11th, 2015 meeting. The Committee also voted to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion. In the United Kingdom, the Bank of England has operational independence. Decisions on interest rates are taken by the Monetary Policy Committee (MPC).

According to the latest inflation report released on May 13^th BoE revised down its GDP growth estimates for the next three years and signaled a rate rise may not occur until mid-2016.

The central bank cut 2015 growth forecast from 2.9 percent to 2.5 percent while projections for 2016 and 2017 were also lowered by 30 basis points to 2.6 percent and 2.4 percent respectively.

Trading perspectives:

From last fortnight or so we've been advocating bullish strategies, well..! We hope regular traders whose portfolios derived profits from such bull run of pound can book their returns on proportionate basis. We still advise to hold some portions to participate on uncertain upward rallies.

Currency derivatives through Condor construction:

On hedging perspectives, with volatility is being dipped after crucial events such as election and policy releasing season we could still sense upward momentum on pounds against dollar.

Hence, we foresee some more marginal upswings on daily charts of GBPUSD in intermediate trend with clear converging signal from RSI (14) and stochastic curves. Although there is no trace of drastic or dramatic movements on either side we still sense some sort of bullish view.

Hence, here comes a multiple legs of option strategy of this currency cross. A total of 4 legs are involved in the condor construction and a net debit is required to establish the strategy.

The hedger can construct a long condor option spread as follows,

Selling a lower strike In-The-Money Call

Buying an even lower strike price In-The-Money Call

Selling a higher strike Out-Of The-Money Call

Buying another even higher strike price Out-Of-The-Money Call

Condor option strategy is best suited when the underlying currency is perceived to have reducing volatility. Despite the traders who anticipate limited risk and non directional trend, this option trading strategy is structured to earn reasonable profits. Kindly remember this strategy is for hedging purpose only.