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GBP/USD Hedges Take Advantage of Historically Low Premiums

  • Currency option volumes rebounded on Tuesday after Monday's US public holiday, with close to $100bln cumulative notional crossing via the DTCC - ahead of the norm for a single session, but more inline when averaged out over the quiet Monday.
  • Activity so far Wednesday is more muted, with GBP/USD hedging activity among the few hotspots of G10 options trade thanks to a series of sizeable put spreads crossing just ahead of the NY crossover. The trades are consistent with a 1.2560/1.2465 one-month put spread rolling off on March 21st - the trade breaks even on GBP/USD weakness below 1.2528 and captures the February CPI report due on March 20th. The trade looks likely partially financed by the sale of a deep OTM 1.1765 put rolling off in August.
  • The trades could be taking advantage of historically cheap hedging premiums, with 1m GBP/USD vols just above 6 points and close to multi-year lows. The 6m contract is close to post-pandemic lows - this leaves an ATM GBP/USD straddle costing ~150 GBP pips and implying a +/- 450 pip swing out to August - thereby respecting the H2 2023 range in the pair.
Figure 1: GBP/USD 10d 6m butterfly vols hold close to post-pandemic lows
MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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