3 month volatility in Sterling, which now includes the referendum date has crossed previous high around 15.2% and crossed above 16% for first time in six years. Soaring cost of insurance to prevent any damage shows that nerves surrounding Sterling remains very fragile but it’s still difficult to predict if the options are overpriced or not. Brexit will be a sigma 3 event and it is next to impossible what kind of uncertainties will it follow in reality.
While our take is that much isn’t likely to change in reality, however uncertainties remain as biggest threat. JPMorgan chief, Jamie Dimon expressed concerns in same line. According to Jamie, consequences of UK’s exit from the union likely to be large and unknown and it may cause years of uncertainties.
This unknown part is what causing the Sterling to fall and options premium to rise.
EUR/GBP, another pair, where both the legs are tied to the event saw its 3 month implied volatility to touch seven year high around 14.4%.
One of our calculation matrix is pointing to Pound/Dollar dropping towards 1.32 area, as long as resistance around 1.45 holds steady.
Pound is currently trading at 1.407 against Dollar.
The material has been provided by InstaForex Company – www.instaforex.com