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4 Mar 2015
Stay long GBP FX volatility into UK elections – BAML
FXStreet (Barcelona) - Strategists at BofA-Merrill Lynch, give the trade setup for GBP into the UK elections, suggesting to remain long GBP FX volatility using GBP/USD.
Key Quotes
“we continue to believe the optimal way to trade the election is to be long GBP FX volatility.”
“In our GBP Year-Ahead report we expressed our preference to be long GBP volatility by owning EUR/GBP straddles. However, we were reluctant to do so at that point with volatility trading on a 10% handle.”
“The recent sell-off in G10 FX volatility more broadly provides us with an opportunity step into a trade. However, we have chosen to switch focus to GBP/USD given much of the nearterm event risk in the Euro Area (Greece, ECB QE) has now passed and perhaps with it, appetite to own EUR-based options.”
“In our view, owning GBP/USD straddles on a 7% handle looks good value”
“The Trade – Own 2mth GBP/USD Straddles
Buy a 2mth GBP/USD at the money straddle (1.5370), which expires on 30 April for 2.37% in GBP terms.”
Key Quotes
“we continue to believe the optimal way to trade the election is to be long GBP FX volatility.”
“In our GBP Year-Ahead report we expressed our preference to be long GBP volatility by owning EUR/GBP straddles. However, we were reluctant to do so at that point with volatility trading on a 10% handle.”
“The recent sell-off in G10 FX volatility more broadly provides us with an opportunity step into a trade. However, we have chosen to switch focus to GBP/USD given much of the nearterm event risk in the Euro Area (Greece, ECB QE) has now passed and perhaps with it, appetite to own EUR-based options.”
“In our view, owning GBP/USD straddles on a 7% handle looks good value”
“The Trade – Own 2mth GBP/USD Straddles
Buy a 2mth GBP/USD at the money straddle (1.5370), which expires on 30 April for 2.37% in GBP terms.”