Surprising victory of Conservative party stimulates Pounds race

The Conservative Party swept to power Friday in Britain's Parliamentary elections, winning an unexpected and resounding victory that returns PM David Cameron to 10 Downing Street in a stronger position than before. Surprisingly, Comeron's conservative party succeeded with enough seats to form UK government on its own.

As stated in our recent article, before this event UK's economy was anyhow in good shape, service segments survey added more impetus to the growth, and in addition the futuristic balances such as business expectations, employment and new orders softened a touch, all remained at high levels. Accordingly, while the weighted average of the three surveys has still nudged down.

It remains consistent with economic growth picking back up sharply after the first quarter's weak 0.3% quarterly rise in GDP. Now, the consistent policy framework can also be expected as there is no significant change in the UK's political condition.

Cautious approach and techniques from here onwards to trade against GBP has to be deployed as it looks in good shape and stronger than ever before.

Hence, we could anticipate further bull rallies in GBPUSD pair.

Option strategy: Call Ratio Spread (@ 1:2 or 1:3)

The strategy would be pretty simple to buy call ratio spreads.

It is a typical combination of Bull Call Spread and Naked Calls.

Here the positions should be long ATM call and short more OTM calls at a higher strike price in ratio of 1:2 or 1:3.

A Short time frame to expiration is preferred to take advantage of time decay in short positions and not to give stock time to move higher. Margin is required to take short call positions.

The reason why we are advising call ratio spread over bull call spread is that we believe the prevailing macro economic and political news are already priced in, the additional bull rallies are just a premium and for trading speculating purpose, however there is no room for downside risk as well.

The chart explains the different payoff at different exchange rate intervals.