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British Pound Options Backtest - Dec 14, 2018 | Market Measures
With low liquidity in FXB, how can we profitably trade Brexit uncertainty?
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      Market Data provided by CME Group & powered by dxFeed Technology. Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
      Market Measures

      British Pound Options Backtest

      Dec 14, 2018

      Political uncertainty regarding Brexit has created some big moves in the British Pound. These wider moves have also increased the implied volatility of FXB, an ETF that tracks the movement of the British Pound.

      Unfortunately, poor liquidity in FXB makes it difficult to trade the Pound, but there is an alternative if we turn to the futures market.

      The Study:

      Without options on futures data, the Research Team created a theoretical back test using Black-Scholes and utilizing the inputs of price and implied volatility to simulate one Standard Deviation strikes and option credits to measure short Strangle performance of /6B option strangles.

      Results:

      Using the futures market options on the British Pound, we can trade the Brexit uncertainty. Historically, short strangles on /6B have been a profitable trade and waiting for implied volatility, like we're experiencing now, improves the win rate and average P/L of these Sterling strangles.

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