Trade view /
24 June 2016 at 1:47 GMT
The original Trade Idea
hoped that GBPCAD would not finish above 1.9050 when the final Brexit vote results were known. It also expected that the period prior to the vote would be quiet. It wasn't.
It went pear-shaped rather quickly. GBPCAD
was trading at 1.8750 when the option was booked, and it climbed steadily. As that was happening, GBPCAD volatility was climbing rapidly, making it prohibitively expensive to unwind the trade. At that point the 0.0150 point premium appeared to be rather inadequate.
It looked really ugly when the YouGov quasi-exit poll was released at 2200 GMT on Thursday, and GBPCAD touched 1.9120.
Squaring up the trade seemed like a prudent idea when Remain's early lead started to narrow, and it was closed for a .0101 point gain.
In hindsight (and I should know better), selling a naked option ahead of a once-in-a-generation risk event was asinine.
Entry: sell GBPCAD call option, strike 1.9050, expiry 24 Jun 16, (NY cut) and earn .0150 points
Performance: if GBPCAD is above 1.9050 at expiry, you are obligated to sell GBPCAD at 1.9050; if GBPCAD is below 1.9050 at expiry, the option expires worthless and you keep the premium (0.0150 points).
GBPCAD spot reference: 1.8750.
Time horizon: close 1000 EST, Friday June 24.
— Edited by Susan McDonald
Non-independent investment research disclaimer applies. Read more