Risk reversals reflect badly on GBP
LONDON - Risk reversals are indicating mounting concerns over sterling, despite the unit's recent strength.
Risk reversals in the GBP/USD 25-delta three-month out-of-the-money options reached -1 on July 13 in favour of sterling puts/dollar calls from about 0.5 at May-end. This shows sterling puts have become increasingly expensive, as risk reversals measure the volatility, and therefore price, of a call over corresponding put options.
The higher put price conflicts with a 10% appreciation of
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