In spite of GBPJPY downtrend seems to be intact, a lot of bad news is already priced in and digested by the market. Brexit caused two Sterling debacles, first in June with the vote and then after the summer when PM May suggested a hard exit.

Election clears the way for a longer and smoother Brexit transition, consequently, the pair from last two weeks’ upswings so far have taken the pair beyond 23.6% Fibonacci retracements from the lows of October 2010 and 21EMA levels. Thus, we foresee northwards journey upto next stiff resistance at 145.546 levels.

Assuming the short term spikes and the negative surprises are market tail risks in medium-term range in this pair, the GBP volatility is still a short.

Even if the aggressive volatility investors want to capture GBP should consider buying ATM put instruments and/or being long of the smile convexity, against ATM volatility.

But further GBPJPY weakness and/or abrupt upswings suggests building a directional and volatility patterns at the same time: the value of OTM puts would likely to rise significantly as the IVs seem to be favouring these distant strikes. We, therefore, recommend buying a 1w1m IV skews and risk reversal with ATM options.

Subsequently, since 1m implied volatilities are considerably spiking on higher side that is most likely to favour vega puts in the robust downtrend.

As a result, we believe in jacking up in long leg of the below option strategy:

Initiate longs of 2 lots of 1m at the money vega put options, simultaneously, short 1 lot of (1%) out of the money put of 2w expiry with positive theta. It is advisable to prefer European style options.s