BUZZ-COMMENT-Monetise GBP volatility and benefit if barriers break
Aug 5 (Reuters) - GBP/USD is volatile, frustrating traders and those looking for a directional move and a potential break above March highs and option barriers by 1.3200, but there's a low risk way to monetise this situation.
A simple vanilla straddle option is designed to capture volatility, regardless of direction. Holders pay a premium for the right to buy or sell GBP/USD at a fixed rate (strike) and expiry, based on the option's implied volatility.
That implied volatility is a perception of how much actual volatility GBP/USD will see before expiry, so actual volatility needs to outperform it to offset the premium cost and generate profit. Holders will neutralise the option's strike risk by buying GBP/USD below and selling above the strike at intervals, known as delta hedging - which is where the potential profit -- or losses -- are made.
If actual and/or implied volatility increase once the option has been purchased, profits are assured. Should either decrease, the option can be sold on, to bank profit or minimise loss potential. Related
For more click on FXBUZ
1-week GBP/USD volatility measureshttps://tmsnrt.rs/33s61Oh
(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.