As the asset most susceptible to Brexit-related news, sterling was hard hit last week by the political deadlock over Theresa May’s proposed deal.
After a mellow summer, one-month and three-month implied volatility for sterling-dollar option contracts jumped to their highest levels since the Summer of the 2016 Brexit vote, as investors rushed for put options and market makers switched to protect their positions.
The move was remarkable. Even investors who had bought call options last week in expectation a deal would push sterling higher still made money, despite the pound’s subsequent fall. That is because the volatility spike made owning options, in general, more valuable.
Investors still seeking safety will now pay up with it becoming continually more costly if you need to buy options, the Brexit endgame having become progressively more obscure. Yet the spectrum outcomes could yet represent a handsome trade with some investors are forecasting a move to as high as $1.35-40 or down to $1.15-20, depending on whether the definite conclusion is regarded as positive or negative.
As the asset most susceptible to Brexit-related news, sterling was hard hit last week by the political deadlock over Theresa May’s proposed deal.
After a mellow summer, one-month and three-month implied volatility for sterling-dollar option contracts jumped to their highest levels since the Summer of the 2016 Brexit vote, as investors rushed for put options and market makers switched to protect their positions.
The move was remarkable. Even investors who had bought call options last week in expectation a deal would push sterling higher still made money, despite the pound’s subsequent fall. That is because the volatility spike made owning options, in general, more valuable.
Investors still seeking safety will now pay up with it becoming continually more costly if you need to buy options, the Brexit endgame having become progressively more obscure.
Yet the spectrum outcomes could yet represent a handsome trade with some investors are forecasting a move to as high as $1.35-40 or down to $1.15-20, depending on whether the definite conclusion is regarded as positive or negative.