Market Outlook: Subtle movements Expected Strategy: Buy a butterflyThe latest bounce in GBP/USD suggests that, for now at least, a sufficient election premium may be priced into sterling. We like to discuss the exploring opportunity of making money on hard currency of GBP as a corrective phase for the US dollar has given sterling some breathing space after the sharp falls over Q1. Having hit a 5-year low of 1.4565 in recent past, GBP/USD has pulled back to around 1.50 over the past week or so, pushing above this level following strong UK employment data. With the polls continuing to point to a hung parliament, political uncertainty looms large. If market concerns over the election result crystallize, however, a move below this level cannot be ruled out.Near month’s option volatility remains close to its highest levels of all time, while implied risk reversals (a measure of the relative volatility of call and put options) indicates the market views the risks to GBP/USD as still biased to the neutral trade sentiments. Hence, though there isn’t much tragic noise on either side it seems British pounds will have a slight upper hand over USD. In order to gain out of this negligible occasion butterfly can still fetch you a better yields. Currently the pair is trading at around 1.4866 levels, therefore:
- Buy an in the money call (reduce costlier premiums but participate in upswings).
- Sell two at the money calls (advantage through pocket in the premiums for certain as there would not be a steep rise).
- Buy an out of the money call (this is just to gain out of our diversified relative upward expectation).
The material has been provided by InstaForex Company – www.instaforex.com