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

OPTIONS
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.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MarketsForeign Exchange Bullets
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MarketsForeign Exchange Bullets

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