Credit: REUTERS/LEONHARD FOEGERBy constantly adjusting that cash hedge to keep the overall position neutral as GBP/USD moves, they hope to bank enough spot pips to offset the premium and return some profit.
Shorter-dated expiry options tend to benefit most from spot volatility, so it's no surprise to see their premiums elevated.
Implied volatility gauges future volatility and determines the premium - one-week expiry GBP/USD implied volatility trades the mid 8's and is below one-week historic/actual volatility at 9.0, highlighting the potential value.
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GBP/USD volatility measureshttps://tmsnrt.rs/2YwOmlv
(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.
