XDB (Pound/Dollar) - Short Term Bet on No News

Discussion in 'Options' started by livevol_ophir, Jun 11, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    XDB (British Pound U.S. Dollar) is quoting 145.42. The IV30&#8482 is down 6.2% today.

    <img src="http://4.bp.blogspot.com/_hMry1m7UF10/TBJhUy8oA6I/AAAAAAAAC7Y/eHxZFjjXDno/s1600/xdb_summary.gif">

    The index has traded over 2,300 options in the first hour on total daily average option volume of just 265. All of the action is in the front month surrounding the ATM options. The Stats Tab and Day's biggest trades snapshots are included (<a href="http://livevol.blogspot.com/2010/06/xdb.html">in the article</a>).

    The Options Tab (<a href="http://livevol.blogspot.com/2010/06/xdb.html">in the article</a>) illustrates the action. 250 puts traded in the Jun 144, 144.5, 145 and 145.5 lines along with 510 in the 146 line. 250 calls traded in the 145, 145.5 and 146 lines. All but the 145 and 146 puts are mostly opening (trade volume > open interest).

    From what I can tell, everything was a sale other than the 146 calls. You can see from the day's biggest trades (above) that these trades all came in at the same time.

    This index is Pound/USD, so if it goes down, the pound goes down. The bet today is one of two things:

    1) A naked sale of vol; i.e. betting that at least in the short term, nothing of substance is going to happen. Or...

    2) This is an arb or hedge against the spot currencies.

    The Skew Tab snap (<a href="http://livevol.blogspot.com/2010/06/xdb.html">in the article</a>) illustrates the vols traded.

    Currency skews are usually parabolic (unlike equities), which is what we see here. To read why equity skew is usually a smirk, you can <a href="http://livevol.blogspot.com/2010/01/solarfun-solf-call-purchases-with.html"> click here</a>. The vols in this trade are all below the second and third months i.e. there is greater risk priced into the medium term than the immediate (one week) short term.

    Finally, the Charts Tab (6 months) is below (<a href="http://livevol.blogspot.com/2010/06/xdb.html">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    Just recently we can see the IV30&#8482 (red line on bottom chart) has dipped below the HV20&#8482 (blue line on bottom chart) after trading well above the realized (HV) during the "crisis" days of the recent past.

    One of the major rating agencies just came out (again) and warned that the UK needed to do something about it's debt or it would lose its AAA rating. Whatever the case may be, this bet doesn't see any real news coming out in the next week.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here:
  2. It's the World Cup. Cable ain't going anywhere.
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Can't wait!
  4. Are the PHLX currency options still as liquid as concrete?
  5. livevol_ophir

    livevol_ophir ET Sponsor

    not quite that bad, but still very bad...