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SocGen Expect Selling Gamma to Continue to Provide Robust Returns

EURGBP
  • SocGen issue new trade recommendation, writing that selling gamma in EUR/GBP has been delivering the most robust returns and they expect further gains.
  • They write that both the ECB and BoE are bound to be hawkish in H2, where peak rates have been respectively discounted about 50bp and 100bp higher.
  • As such, the risk of a rise in short rates vol would require an unexpected dovish repricing - therefore, they see little chance for EUR/GBP realised vol to bounce in the coming months and recommend capturing EUR/GBP volatility risk premium.
  • As such, they recommend taking a view via either short EUR/GBP 3m volatility swap, or by selling EUR/GBP 3m straddles and dynamically delta-hedging the latter position.
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