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Nov 26 - 08:36 AM
GBP/USD - COMMENT-Simple Insurance Against A Pre-Election GBP/USD Drop
First appeared on eFXplus on Nov 26 - 06:50 AM

Sterling fell on Tuesday after a second poll showed the Conservative Party's lead is narrowing before the British election next month nL8N2861Y6.
Things could get a lot worse for the pound if the narrowing continues nL1N28605X.
That would likely send GBP/USD crashing down below last week's Refinitiv data 1.2822 low, a daily close below which would unmask the 1.2700 Fibonacci level, a 38.2% retrace of the 1.2196 to 1.3012 October gain.
A simple way traders can protect against a pre-election drop is by investing in a one-week 1.2860 GBP put option for a cost of 50 pips, priced with spot at 1.2865.
Profit potential is unlimited if spot is below the 1.2810 break-even point at the Dec.
3 expiry.
Losses are limited to the 50-pip premium, which may be expensive but is preferable to a cash short that may have to be coupled with a stop that would be vulnerable to near-term spikes.
The option outlook pre-election is neutral; most bets are within 1.2700-1.3000 with no bias.
The main focus is post-election nL1N28605F.


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Source:
Refinitiv IFR Research/Market Commentary

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