Trading GBPUSD via FX Option Strategies Trading GBPUSD via FX Option Strategies Trading GBPUSD via FX Option Strategies

Trading GBPUSD via FX Option Strategies

Options 10 minutes to read
Hay Thi

Market Specialist

Background

The UK general election on July 4, 2024, saw a landslide victory for the Labour Party, ending 14 years of Conservative rule. Markets are optimistic that the Labour’s Party’s win could reduce political and economic uncertainty, potentially strengthening the sterling through better U.K economic conditions and greater political stability. Meanwhile, the USD has weakened due to cooling US labour market data last Friday, suggesting the Fed could start cutting rates soon. The Bank of England has not yet given clear indications of its rate cuts, but the first cut is widely expected in August. GBPUSD is currently trading steadily above 1.28.

Our Head of FX Strategy thinks:

Sterling's bullish run in H1 came on the back of improving economic momentum. Political stability has given further room to sterling to extend its dominance over other G10 currencies, especially as it comes in a sharp contrast to the unstable political developments in other parts of Europe. Any downside in the US dollar will continue to be a tailwind for the procyclical British pound.

There is a risk that Bank of England MPC members will start to signal a rate cuts if services inflation continues to soften. This could create some downside pressures on sterling, but BOE rate cut cycle is unlikely to remain any more aggressive than the Fed, and hence relative weakness in sterling should remain contained. 

Option inspiration to consider for GBPUSD bulls

Buy Call/Sell Put for 1 month

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 1 month (08-Aug-2024)
  • Buy Call at strike price: 1.2910
  • Sell Put at strike price: 1.2735
  • Net cost ~ 0
Bull GBPUSD 1

Buy Call/Sell Call/Sell Put for 1 month

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 1 month (08-Aug-2024)
  • Buy Call at strike price: 1.2815
  • Sell Call at strike price: 1.2940
  • Sell Put at strike price: 1.2750
  • Net cost ~ 0

Bull GBPUSD 2

Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 1 month for a notional value of GBP 100k

Bull GBPUSD 3

Buy Call/Sell Put for 3 months

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 3 months (08-Oct-2024)
  • Buy Call at strike price: 1.2930
  • Sell Put at strike price: 1.2720
  • Net cost ~ 0

Bull GBPUSD 4

Buy Call/Sell Call/Sell Put for 3 months

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 3 months (08-Oct-2024)
  • Buy Call at strike price: 1.2810
  • Sell Call at strike price: 1.3045
  • Sell Put at strike price: 1.2700
  • Net cost ~ 0
Bull GBPUSD 5

Scenario Analysis comparing pay-offs of Buy Spot vs Sell Put vs Collar vs Seagull for 3 months for a notional value of GBP 100K

Bull GBPUSD 6

Options inspiration to consider for GBPUSD bears

Buy Put/Sell Call for 1 month

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 1 month (08-Aug-2024)
  • Sell Call at strike price: 1.2900
  • Buy Put at strike price: 1.2705
  • Net cost ~ 0
Bear GBPUSD 1

Buy Put/Sell Put/Sell Call for 1 month

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 1 month (08-Aug-2024)
  • Buy Put at strike price: 1.2810
  • Sell Put at strike price: 1.2700
  • Sell Call at strike price: 1.2900
  • Net cost ~ 0
Bear GBPUSD 2

Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 1 month for a notional value of GBP 100k

Bear GBPUSD 3

Buy Put/Sell Call for 3 months

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 3 months (08-Oct-2024)
  • Sell Call at strike price: 1.2915
  • Buy Put at strike price: 1.2725
  • Net cost ~ 0
Bear GBPUSD 4

Buy Put/Sell Put/Sell Call for 3 months

  • Spot Reference: 1.2810
  • Notional value: 100,000
  • Expiry date: 3 months (08-Oct-2024)
  • Buy Put at strike price: 1.2810
  • Sell Put at strike price: 1.2695
  • Sell Call at strike price: 1.2910
  • Net cost ~ 0
Bear GBPUSD 5

Scenario Analysis comparing pay-offs of Sell Spot vs Sell Call vs Collar vs Seagull for 3 months for a notional value of GBP 100k

Bear GBPUSD 6

Important disclaimer: The impact of swaps is not taken into consideration in the scenario above. The strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and consider their unique financial situation, risk tolerance, and investment objectives before making any decisions. 

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