Retail sales volumes MoM in UK surged by 1.9% in October, exceeding all expectations (CON 0.5%; LBCB 0.6%) after a modest 0.1% gain in September. Some strength in today’s report was expected, with advance indicators of retail activity – including the British Retail Consortium’s survey and weekly sales returns from John Lewis.

Looking ahead, headwinds to retail spending activity are likely to become more apparent over the course of 2017. The annual pace of retail price deflation slowed further in October, to 0.7% from 1.1% in September, and the outlook over the coming months is set to reflect sterling’s substantial post-referendum depreciation. A push higher in inflation will sap households’ purchasing power, which seems likely to weigh both on retail spending volumes, and consumer spending more broadly.

While unemployment claims in the UK is also improved from previous 4.9% to the current 4.8%.

OTC updates and Option strategy:

Ahead of quarterly GDP flashes in the UK that is scheduled for next week, 1m ATM IVs of GBPJPY are trading higher above 14% and positively skewed IVs suggest the OTC hedging interests in OTM put strikes, which means considering the current rallies and long term bearish trend we advocate below option strategy on hedging grounds.

Go long in 2 lots of 1m ATM -0.49 delta puts, while long in +0.51 delta put of the same expiry, See that payoff function the strategy likely to derive positive cashflows regardless of swings but more potential from 2 puts are more than 1 call.

The risk is Limited to the price paid to buy the options.
The reward is Unlimited till the expiry of the option.

Please note that the trader can still make money even if he was wrong – but the stock has to move in the opposite direction really fast. The 1 call bought has to beat the cost of buying all the options and still bring in some profits.