- GBP/USD's options market is currently reporting the strongest bearish bias since April.
- UK's parliament on Saturday rejected Prime Minister Johnson's Brexit deal.
GBP/USD's options market is most bearish on Pound since April, a sign the investors are adding bets to position for a drop in Sterling on waning Brexit optimism.
One-month risk reversals (GBP1MRR), a gauge of calls to puts on the British Pound crashed to -1.70 on Friday and is currently seen at -1.65. Friday's print was the lowest level in six months. Notably, the gauge had jumped to a 21-month high of 0.125 on Oct. 11.
The negative number indicates the premium claimed by (or the demand for) put options (bearish bets) is higher than the premium for call options (bullish bets).
The slide from Oct. 11's high of 0.125 to Oct. 17's low of -1.70 indicates the investors were expecting the UK parliament to put brakes on Prime Minister Boris Johnson's Brexit deal and hedged against potential sell-off in Pound by buying put options.
More importantly, the options market maintained its bearish bias on Pound in the Asian session.
Waning Brexit optimism
Super Saturday turned out to be a dud with the UK parliament withholding support for the Brexit deal, forcing Prime Minister Johnson to send a letter to the EU requesting a three-month extension to article 50.
Johnson will try again on Monday to secure parliament’s support for his Brexit deal in a yes/no meaningful vote, according to The Guardian. However, markets fear the Speaker could rule it out of order or MPs may again withhold support for it until full legislation is passed.
The GBP, therefore, may come under pressure, as anticipated by the options market. As of writing, GBP/USD is trading at 1.2914, representing a 0.46% loss on the day, having hit a high of 1.2990 on Oct. 17.
While the options market is preparing for Brexit delay, the analysts at Goldman Sachs lowered the probability of a no-deal Brexit to 5% from 10%.
GBP1MRR
Technical levels
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0650 after US data
EUR/USD retreats from session highs but manages to hold above 1.0650 in the early American session. Upbeat macroeconomic data releases from the US helps the US Dollar find a foothold and limits the pair's upside.
GBP/USD retreats toward 1.2450 on modest USD rebound
GBP/USD edges lower in the second half of the day and trades at around 1.2450. Better-than-expected Jobless Claims and Philadelphia Fed Manufacturing Index data from the US provides a support to the USD and forces the pair to stay on the back foot.
Gold clings to strong daily gains above $2,380
Gold trades in positive territory above $2,380 on Thursday. Although the benchmark 10-year US Treasury bond yield holds steady following upbeat US data, XAU/USD continues to stretch higher on growing fears over a deepening conflict in the Middle East.
Ripple faces significant correction as former SEC litigator says lawsuit could make it to Supreme Court
Ripple (XRP) price hovers below the key $0.50 level on Thursday after failing at another attempt to break and close above the resistance for the fourth day in a row.
Have we seen the extent of the Fed rate repricing?
Markets have been mostly consolidating recent moves into Thursday. We’ve seen some profit taking on Dollar longs and renewed demand for US equities into the dip. Whether or not this holds up is a completely different story.