By 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)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.