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15 Feb 2013
Forex Flash: Trade convergence in GBP vol space. - Societe Generale
Sebastien Galy, Senior FX Strategist at Societe Generale notes that the recent rise in EUR/GBP vol left cable vol lagging.
He feels that this s is mostly because the GBP weakened more against the EUR than the USD. In his view, the most likely scenario is a reconnection, with EUR/GBP vol heading lower and GBP/USD vol converging higher. Galy writes, “EUR/GBP realised volatility is very toppish, while the cable breaking downward should increase its volatility. We recommend buying a 1M straddle in cable and selling a 1M strangle in EUR/GBP, on a vega weighted basis. This strategy will generate carry in a range-bound environment, or will benefit from a trend in cable either way.”
He feels that this s is mostly because the GBP weakened more against the EUR than the USD. In his view, the most likely scenario is a reconnection, with EUR/GBP vol heading lower and GBP/USD vol converging higher. Galy writes, “EUR/GBP realised volatility is very toppish, while the cable breaking downward should increase its volatility. We recommend buying a 1M straddle in cable and selling a 1M strangle in EUR/GBP, on a vega weighted basis. This strategy will generate carry in a range-bound environment, or will benefit from a trend in cable either way.”