We have been writing about the imploding global volatilities across assets. The Brexit mess has managed creating some of the most volatile sessions, both in vols going higher, as well as vols going lower. Recent news regarding the Brexit has resulted in the GBP doing nothing. Daily trading ranges are very tight and realized volatility is low.
Despite relatively low levels of actual moves, investors have been loading up on hedges in case the Brexit would result in massive moves for the underlying assets. After the latest news on Brexit, those hedges suddenly became worth (much) less.
FTSE implied volatility took a new low for the year today, but that is more an effect of the global equity volatility sell off.
What is far more violent, is the move lower in GBP 1-month ATM implied volatility. From 14 to 6.5% in a few days, with the absolutely biggest down day today. Moves like these are often to be seen when volatilities explode to the upside, but this time around, the Brexit event suddenly “vanished”, at least for the coming month. This move lower in GBP volatility is causing big p/l pain among the “smart” guys that hedged the Brexit risk.
Talk about unintended consequences.
Source, charts by Bloomberg
