Safeguard long term profitability on pounds ahead of outcome of UK elections

GBP/USD was up slightly from previous 1.5160 to 1.5189 ahead of the service segment data. Research firm Markit said the services purchasing managers' index rose to 59.5 in April from 58.9 in March. Economists had forecast a decline to 58.5. A reading below 50.0 indicates activity is declining, while a reading above that level implies it is increasing.

The robust data eased concerns over an economic slowdown after recent similar surveys showed that growth in both the manufacturing and construction sectors slowed sharply in April and another report showed that the U.K. economy expanded just 0.3% in the first quarter.

Where the US$ stood under pressure after the latest U.S. trade data pointed to that the economy may have contracted in the first quarter. The U.S. dollar index, which measures the greenback's strength against a trade-weighted basket of six major currencies, was down 0.30% to 94.97, not far from the two-month low of 94.47 set last Thursday. With comparative intensity standpoint we still smell more profitability in UK environment.

Derivatives insights:
Option strategy: Bullish Calendar Spread

Although the current high impact event (UK elections) is on, with great deal of profitability lingering around the pound sterling we are bullish to advocate a calendar spread as the election adding high volatility. The reason why are we advocating calendar spread is that to ensure to spare this high volatility factor aside.

This strategy can be created through selling a call option either of ATM or OTM as they are relatively cheaper and buying another call option of same strike price with longer maturity (far month contract).

Profit for such positions may typically be generated due to more time decay to expiration. The chances of hitting our targets will have Theta (time measure) benefits.

The above strategy can also be converted into a reverse calendar spread or neutral calendar spread Break even at expiry would be the strike price plus premium.