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Dec 01 - 08:55 AM

GBP/USD - COMMENT-Brexit Bulls Beware - Huge Unwinding Of GBP/USD Call Option

By Richard Pace  —  Dec 01 - 06:50 AM

GBP is showing signs of fatigue after reaching 1.3400 - over-the-counter FX options haven't been looking at much above 1.3500 for months, and now the unwinding of a huge GBP call/USD put listed option on the CME shouts another warning to bulls.

Traders report a Jan.
8 expiry 1.4000 GBP call was sold on around 1.6 billion pounds when GBP/USD reached 1.3400 early Tuesday.
The trade was initiated about a month ago when spot was nearer 1.3000, so its unwinding appears to be a cutting of losses while it still retains some time value.

A post-Brexit trade deal is thought to be mostly priced in now, so GBP/USD's upside potential is more limited.
Over-the-counter options have been targeting 1.3500, with little interest to buy protection much above.

Also of note is the increase in implied volatility premium for GBP put versus call options (downside versus upside) - highlighting a perception that GBP can fall much more than it can gain from current levels nL1N2IG0H9.
Related comment nL1N2IH0JF

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GBP=D3 Click here

1-3-12-month GBP/USD risk reversals - Click here

Source:
Refinitiv IFR Research/Market Commentary

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