###POV: GBP HEDGERS SHOULD WAIT TO OFFSET...>

OPTIONS: ###POV: GBP HEDGERS SHOULD WAIT TO OFFSET HIGH PREMIUMS

-The complete inversion of the GBP/USD vol term structure under Johnson's

premiership leaves those looking to cover GBP exposure across October with a

stiff bill: 3m implieds rose to just shy of 15 vol points this week and the

highest since early December. This boosted the cost of a 3m ATM GBP/USD straddle

to as much as 500 GBP pips this week, a position that would have cost around 380

pips when the structure first captured 'Brexit Day' on Oct31 at the beginning of

August. The modest retreat in 3m implied this morning has partially alleviated

this cost, leaving hedgers left wondering whether waiting to cover exposure is

the best cost-minimising strategy.

-There's a decent probability that today's pullback in vols will extend further.

There are still avenues the PM can pursue to force a disruptive No Deal Brexit.

But, if Labour hold true to their promise of securing today's legislation before

moving forward on election support, the PM's hands will be tied further. This

would likely see the GBP/USD implied vol premium drop, with the run-up in

realized vols over August not justifying the bid in implied hedging costs.