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Feb 10 - 07:55 AM

GBP/USD - COMMENT-Cheap Options May Be Preferable To GBP/USD Longs

By Richard Pace  —  Feb 10 - 05:44 AM

Those worried about the risk versus reward of GBP longs from current levels, but not guaranteed a dip to buy, or even those wary of being stopped, might consider cheap options to participate in any further gains.

GBP call options give holders the right to buy GBP at predetermined expiry and spot (strike), and only risk an up-front premium, which can be significantly reduced by placing a barrier above the strike.

For example, with GBP/USD at 1.3840, a two-week expiry 1.3840 GBP call gives the holder the right to buy GBP/USD at 1.3840 on Feb.
24, at a cost of 72 pips (profit above 1.3912).
But add a knock-out barrier at 1.40 and it's just 10 pips (profit above 1.3850).
Profit is limited to 149 pips if 1.40 trades the option is dead.

Higher strikes, lower barriers and longer expiries can all reduce the initial cost, but 1.4000 might be a good short-term target given the alleged barriers and related defence already there.

Similar options currently favoured in EUR/USD nL1N2KF12S



For more click on FXBUZ


GBP=D3 Click here

Source:
Refinitiv IFR Research/Market Commentary

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