FxWirePro: GBP/CAD Debit Put Spreads on 3m Skews Ahead of BoE

BoE is scheduled for its monetary policy for this week. Ongoing political uncertainty indicates a continuation of the ‘wait-and-see’ message regarding the timing of the next bank rate hike.

Still, an expected upgrade to GDP growth in 2019 and the persistence of above-target inflation over the forecast horizon will do little to endorse the current ‘dovish’ market view on UK bank rate.

The urgency to hike anytime soon, however, is likely to be little changed, particularly with the outlook still clouded by the Brexit fog.

Let’s just quickly glance at GBPCAD 3m IV skews before looking at the options strategies. 

The positively skewed IVs of this pair has also been stretched out on OTM Calls. This is conducive for options holders of OTM call options.

Contemplating above-explained bullish OTC sentiments signaled by the IV skews of the 3m tenors and fundamental factors, on trading perspective, debit call spreads are advocated as the buying indications are piling up on the daily graph.

Execute strategy by, buying 2w (1%) In-The-Money 0.69 delta call option and short 2w (1%) Out-Of-The-Money call option for a net debit. The strategy can be executed at net debit. Remember, deep in the money call with a very strong delta will move in tandem with the underlying, while short leg on Out-Of-The-Money call option is recommended to reduce the cost of hedging by financing long position in In-The-Money call option. Courtesy: Sentry

Currency Strength Index: FxWirePro's hourly GBP spot index has shown 45 (which is bullish), while CAD is flashing at -60 (bearish), while articulating at 12:33 GMT. 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex