GBP/USD: Watch for gamma scalping at key edges

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 13, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Bali) - GBP/USD continues to find strong M&A related flows to set a fresh session high of 1.5375, up from its Asian low at 1.53.

    UK M&A flows behind GBP spike

    The catalyst for the GBP spike were M&A news, with UK’s SAB Miller board to recommend an AB InBev deal to shareholders for GBP 44 per share. While the rise may see further momentum, given the vertical one-way move, offers are expected at the strong resistance of 1.5380 up to 1.54, with the UK inflation data eyed.

    Option traders still seen gamma scalping the Pound

    One of the present characteristics of the GBP/USD market remains the pricing of implied volatility, currently at 6.71 vs a historical volatility (20-periods) for the last 12 months of 7.5, which implies the market should remain long vega (volatility) via the purchase of calls.

    Such market environments usually results in trappy price action - watch for potential reversal post UK CPI -, with key edges more often than not holding as option players actively participate on gamma scalping strategies to mitigate the risk of their options positioning, by trying to keep the underlying asset (GBP/USD) within a limited range.
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