As the UK CPI data is the major focus of the day that is scheduled to be announced (10:30 CET), and is forecasted to display slightly higher inflation in June (0.4% YoY), after Brexit votes, BoE is most likely to cut bank rates that would in turn to add little stress on cable for further depreciation.

While the implied volatility of 1w ATM contracts of this the pair is reducing considerably, at around 13%. But skews in these IVs signify the bears’ interests to hit OTM strikes. The delta risk reversal for the pair is still popping up the negative values for all expiries.

While formulating hedging strategies, we came across the NPV of 1w ATM calls comparatively seem economical than puts of GBPUSD as both premiums trading above 12.5% NPV. So the option pricing has been in sync with the IVs.

So those who are not comfortable with ATM put strikes, alternatively the abrupt upswings in the short term are the best advantage for bears to deploy below synthetic put option strategy and to be utilized for short term hedging grounds (Comparing neutral bearish delta risk reversal with last week).

Subsequently, if you think IVs are not sufficient then one can even think of the "arbitrage strategy" in which options trading that can be performed for a riskless profit as GBPUSD ATM put options are overpriced relative to the underlying exchange rate of GBPUSD.

To perform this conversion, at GBPUSD spot ref 1.3228, the hedger shorts the underlying spot FX and offset it with an equivalent synthetic short put (i.e. short spot FX + long ATM call) position.

Hence, those who compare the NPV difference in options premiums between ATM calls and puts, and think the hedging cost for downside risks would not be economical as a result of deploying ATM instruments.

Profit is locked in immediately when the conversion is done, the profit would be the difference between the short price of spot FX and price of forward price and premium paid.