The GBP versus a few major G10 currencies on Wednesday, despite upbeat Q2 GDP numbers, as the investors seem to have remained cautious ahead of the Fed’s monetary policy statement due later in the day and the Bank of England’s policy meeting next week.
GBPUSD lost from the highs of 1.3161 to the current 1.3104 levels, we think dollar holding mightier ahead of Fed’s monetary policy decision, while EURGBP has gained about 0.43% (i.e. from the lows of 0.8349 to the current 0.8390 levels). GBPCAD has dipped from highs of 1.7394 to the current 1.7277 levels.
According to a Bloomberg survey released on Wednesday, consensus expects the U.K. to contract by 0.1% in the third quarter.
Since the investors are still eyeing on the BoE’s upcoming policy meeting amid mounting prospects for a rate cut, we foresee no strength in GBP atleast in near terms. Hence, it is advisable to stay hedged in EURGBP with below option strategy.
Hedging Strategy:
ATM IVs of 1W expiries are on a lower side, at around 9.67%, and manage to spike above 10% for 1M tenor (to be precise 10.38%).
Although the momentum in long term bull trend is slightly reduced, but from the last couple of weeks shown a robust strength, Euro against pounds has been gaining considerably (about 10.92% while articulating) as all technical indicators are still signalling buying sentiments.
But if you have to evaluate the ATM IVs with the monthly technical chart, the prevailing bullish swings may not be having the same momentum in rallies as we are seeing it right now.
Technically, we see a strong demand side for euro against pounds at 0.7912 levels.
If IV is high, it means the market thinks the price has potential for large movement in either direction. Since IVs are lower side, this implies the market ponder over the price would not move much and so that it is beneficial for option writers.
Hence, we recommend initiating longs in 1M ATM +0.51 delta call, 1 lot of (1%) OTM +0.36 delta call and simultaneously short 1 lot of deep OTM call (2%) with comparatively shorter expiry in the ratio of 2:1.
The lower strike short calls seems little risky but because IV is reducing, the likelihood of options expiring in the money is very less and it finances the purchase of the greater number of long calls (ATM calls are overpriced, so we chose 1% OTM calls as well) and the position is entered for reduced cost.


UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data
Mexico's Undervalued Equity Market Offers Long-Term Investment Potential
Urban studies: Doing research when every city is different
South Korea Vows Action to Stabilize Won as Currency Weakens Despite Strong Fundamentals
Moody's Upgrades Argentina's Credit Rating Amid Economic Reforms
Wall Street Analysts Weigh in on Latest NFP Data
Moldova Criticizes Russia Amid Transdniestria Energy Crisis
Fed Confirms Rate Meeting Schedule Despite Severe Winter Storm in Washington D.C.
Indonesia Surprises Markets with Interest Rate Cut Amid Currency Pressure
Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure
Morgan Stanley Flags High Volatility Ahead for Tesla Stock on Robotaxi and AI Updates
S&P 500 Relies on Tech for Growth in Q4 2024, Says Barclays




