By Giles Coghlan, Chief Currency Analyst at HYCM
Demand for downside protection grows, via Bloomberg
The saying is meant to be, 'once bitten, twice shy'. However, for GBP traders it is 'twice bitten, twice as shy!'. Ok, not a great way into this post. However, it makes the simpole point that the approaching election has triggered a big jump in demand for downside protection. The GBP 1 week risk reversal skew which includes the December 12 election, has moved in favour of sterling put options for the most in over a year.
Despite the fact that the polls are putting the Conservatives firmly in the lead (see a poll of polls from Politico below). The risk is that the election throws another curve ball in UK politics. These are strange times we are living in and political life is becoming more extreme with centrist policy and politics under threat. For GBP traders. be prepared for a buy the rumour, sell the fact trade even if the conservatives do win the election.