As per exit polls, the Conservatives came out way in front of Labour and will lead the next government but a coalition will be on cards.On the data front, the trade deficit should narrow from £2,859m to £2,400m, driven by some recovery in exports this month and a smaller deficit on erratics. The oil balance should be reasonably stable.Hence, the end result of the UK election will certainly be a hung parliament. However, on the contrary to earlier polls’ guess of narrow contest between the Conservatives and Labour, current exit polls suggest the Conservatives came out way ahead, probably little short of an absolute majority.Overall with regards to the fiscal policy, the course of the past five years will be maintained which is deemed to prop up a positive market reaction.Currency Derivative Options:We think British economy gives all indications of heading towards good shape in upcoming months.Of late we’ve been undoubtedly advocating strategies to gain on our bullish standpoint, here comes one more. This can be applicable on either GBPUSD or EURGBP pairs. But from currently we see comparatively higher profitability on EURGBP currency cross.Option strategy: Call Ratio Back spreadThose who expect the underling currency to make a large move higher, then the strategy can be established as follows,Purchase more number of calls and sell fewer calls of a lower strike usually in a ratio of 2:1. The lower strike short calls finances the purchase of the greater number of long calls and the position is entered for no cost or a net credit.The GBP have to make substantial move on the upside for the gains in long calls to overcome the losses in the short calls as the maximum loss is at the long strike. Give stock longer time to expiration so as to make a substantial up move.In this trade, the maximum loss is to the extent of Long Strike – Short Strike – credit received.But the maximum gain on the other hand would be unlimited on the upside and limited on the downside to the net credit received.
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