Credit: REUTERS/DADO RUVICOct 28 (Reuters) - Hopes for European Union/UK trade deal have been apparent in GBP derivative markets for weeks , and FX options remain a decent alternative to cash for those who want to benefit from a GBP rise with limited risk.
Long GBP/USD cash retains the risk of no deal, interim volatility and stops, even those well below the current spot, especially over the U.S election . But simple GBP call options give owners the right to buy GBP/USD at a predetermined level (strike) and expiry, only risking an up-front premium.
GBP/USD would also benefit from a Democrat sweep in the U.S election, which should pressure the USD, as U.S fiscal hopes buoy risk sentiment.
Consider two-month (Dec. 29) 1.3500 GBP calls for a 60-USD-pips premium. Its value would increase if GBP/USD was nearer the strike with time still left before expiry, even if not above.
Or a two-month 1.3500 GBP call digital would return 4:1 if GBP/USD was above 1.3500 on Dec. 29.
Options strikes and expiries can be tailored to suit.
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GBP=D3https://tmsnrt.rs/2Tv1cgS
(Richard Pace is a Reuters market analyst. The views expressed are his own)
((Richard.Pace@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
