Please have a glance on how implied volatilities of ATM puts of 1D and 1W expiries are acting crazily in OTC markets, 16.90% and 12.84% respectively ahead of Bank of England's monetary policy which is most likely to be unchanged.

These short term volatilities are majorly owing to BoE's monetary policy that is scheduled tomorrow. Officials are expected to stand pat on the benchmark interest rate a record low 0.5% when they announce their decision on Thursday.

Subsequently, what is weighing on the pound's slumps is that, the expectations on BoE unlikely changes but the chances for lower interest rates in H1 of 2016 has grown up to 33%, an increase from the February survey that had placed the odds at only 10%, above all lingering Brexit probabilities add an extra pressure on sterling's depreciation.

Technically, Daily price jump above trend-line support has momentum that is signalled by RSI & Stochastic oscillators, but MACD's bearish crossover and since the current prices have slid below 21DMA, we uphold the stiff resistance at  156.200, sloping upper trend-line & 21DMA too.

Since, at spot FX reference of GBPJPY - 155.100, the pair has little upward potential with IVs to soften in long run, with almost unlikely changes in BoE, FX option markets have been factoring GBP depreciation by 20% is divulging the weakness in this pair and it means the market thinks the price has potential for large movement in downward direction, so momentary gains should be the ideal time to utilize for option writings.

Hence, we advocate the suitable strategy to hedge these downside risks by using these small bounces from then to help our ITM shorts, this would have certainly ensured returns in the form of premiums. 

So, stay firm with longs on 2 lots of 1M At-The-Money Vega puts that would function effectively in progressively higher IV times (see sensitivity table for higher probabilities and stabilized Vega growth).

Deploy shorts side of 1 lot of 3D (0.5%) ITM put option as IVs are likely to shrink and capped upside potential maximum upto 156.200 levels, this would generate assured returns on any abrupt rallies.

The Vega would be at its maximum when the option is at ATM and declines exponentially as the option moves ITM or OTM owing to every tiny shift in IVs that will make no difference on the likelihood of an option far out-of-the-money expiring ITM Or on the likelihood of an option far into-the-money not expiring ITM.