Black Rock: We will make money from GBP, direction doesn't matter

lackRock Inc. is all set to profit should the pound surge. Or sink. The world’s largest money manager is convinced sterling’s next big move is just around the corner as Brexit negotiations come to a head, but which way it will swing hinges entirely on the end result. As a one-sided bet could just as well backfire as it may profit, BlackRock has bought itself an option straddle, a strategy that profits on a sharp shift either way in the pound-dollar pair.

The biggest challenge faced by investors is the possibility of the U.K. and the European Union failing to secure a Brexit transition deal and decisions at next week’s EU summit could be pivotal, according to Scott Thiel, deputy chief investment officer for fundamental fixed income. Sterling has stayed near $1.40 since early February and is little changed versus the euro over the past six months, but that suggests the market is underpricing the risks, he said.

“The pound’s recent stability suggests to me that the the market isn’t really fully pricing in a really negative outcome,” Thiel said during an interview in London. “The biggest risk is Brexit, for sure.”

Assuming a six-month straddle, which also covers the next four Bank of England meetings, is initiated at around $1.40, an investor would pay 50,000 pounds ($70,000) for a contract worth 1 million pounds. The strategy will break even if sterling moves to either $1.34 or $1.48, according to Bloomberg calculations. A straddle involves buying a call option and a put on the same underlying asset with the same strike price and expiry.

Source: Bloomberg Pro Terminal

Jr Trader Petar Milanov

Bloomberg: BlackRock Is Ready for Big Pound Move. Direction Doesn't Matter

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