In just last five months, GBPCAD has declined from the highs of 2.0949 to the current 1.8162 levels, (i.e. almost 13.3%).

In UK, the central bank maintained an unchanged interest rate at 0.50%, all MPC members unanimously voted for this decision.

The main reason behind this decision is that the BoE would not want to put any additional strain on the markets and the British economy by allowing any speculation about an adjustment of its monetary policy.

Elsewhere, in OTC markets, ATM IVs  seem to be quite poised to factor in these weakness in this pair as we could see reasonable increase in IVs of 1W and 1M tenors. As a result, we recommend capitalizing on the sustainable IV factor by employing ITM short puts as there central bank's decision was in line with market's expectations and matching this with ATM longs to construct short term back spreads that is likely to fetch positive cash flows as per the indications by sensitivity table.

When trying to assess how a spread may perform, look at the spreads of deeper in-the-money options for an indication of relative option prices. (For a demonstrated purpose we’ve used 1% ITM instruments, in real times use longer expiries on ATM longs.

So, keeping all these attributes in mind, here goes the strategy, go long in 1M 2 lots of ATM -0.50 delta put, and in 2M (0.5%) OTM -0.35 delta puts, while shorting 1 lot of ATM put and (0.5%) OTM put with both expiries of 1 week.

Idea is to get more cushion from the shorting premiums as there is no deviation from central bank's decision, subsequently, the slight upward or sideway swings would derive the positive cashflows through the initial receipts of shorts which could be utilized for reducing hedging cost.

While on the other hand, more weights on longs would likely take care of prevailing major bear trend, in other words, as the spot price keep dipping (as per sensitivity table) these long positions gain more. Ultimately, any potential declines are most likely to be arrested.

Should a what-if analysis reveal that traders will lose an uncomfortable amount of money, they should either flatten out their ratio, wait for another opportunity in the cycle, or look for a spread in another pair.