Geopolitical risks and multiple central bank policy meetings have led the market to favor long gamma positions, keeping the relative premium for hedging pound volatility elevated this week. According to Sina Finance, the pound-dollar one-week implied volatility rose to 6.76% last Friday, the highest since late July, up from 6.02% at the London open.
The spread between one-week implied volatility and realized volatility was 221 basis points, at the 97th percentile over the past two years. The one-week risk reversal stood at 28 basis points, with put options trading at a higher premium than call options, compared with 55 basis points on September 3. Upcoming risk events include policy decisions from the Federal Reserve and the Bank of England, concerns about slowing growth in the artificial intelligence industry, and elevated oil prices.