BUZZ-COMMENT-Brexit optimists might consider low-risk GBP options
Oct 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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(Richard Pace is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.