Low delta EUR/GBP put options for Greece risks

As we stated in our previous post also, although the market response towards Greece turmoil remains fragile and the EUR seems to exhibit a high beta to political developments on either side.

The cash difficulty for Greece are likely to stay in the coming weeks and the next potential official liabilities includes the payables of € 1.8 bln in wages and pensions at the end of April and the € 200 mln IMF interest payment on 1^st May.

Despite the invisible improvements between Greece and its European creditors, in last few trading sessions the EUR has been rather flexible.

Negotiations in Greece are coming to a head as the government exhausts the very last of its cash reserves. Without a deal, Greece is set to default on the IMF on June 5 (or June 12).

Since direct foreign exposure to Greece is low, even an IMF default and/or capital controls would be likely to cause limited contagion if the country's EUR membership is assured.

Macro view & Currency Derivatives Insights:

We think an exit would have a meaningful negative impact but still think Greece will stay in the Euro area.

EUR's upside is likely to be limited in the event of a deal but we would expect downside in the event of a referendum.

Delta offer conducive hand: In such circumstances, the low-delta EUR/GBP put options come into place as a hedge for that risk. Remember the sign of a Delta is related to the direction of the equivalent position in the underlying market.