Free Trial

Short-end GBP vols are rallying sharply.......>

CABLE
CABLE: Short-end GBP vols are rallying sharply over past few hours (alongside
spot), with the 2w implied vol measure hitting the best levels since Apr11 and
adding well over 1 vol point.
- The decline in shorter-dated vol over April has been among the sharpest falls
in recorded history. 2w vols have only ever fallen at such a rate on one other
occasion in data going back to the late 90s - the fallout of the referendum
itself. Interestingly, of the 25 sharpest monthly falls in 2w vols, 80% of those
were followed by a positive return within one month.
- This leaves medium-term GBP vols (3m and higher), capturing election risk and
extended Brexit machinations, looking historically under-priced. A 3m GBP/USD
straddle breaks even on an approximately 370 pip swing at expiry, less than half
the fluctuation required at the recent peak of implied vol just a few months
ago. The low base of implied vols also adds to the attractiveness of these
plays, with only a modest rise in implied vols required to increase the
profitability of positions.
- See email MNI MARKET ANALYSIS: GBP Vols - Too Far, Too Fast? for full details.
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.