British pound derivative markets flash red as election gets underway

LONDON - Traders rushed to the foreign exchange derivative markets on Thursday to protect their exposure to the British pound in case of a surprise election outcome.

The premium for pound puts over calls over the next week jumped to its highest since September 2016 at nearly 6%. That means more investors are wanting downside protection by buying the right to sell the pound over the next week.

While the cash markets were relatively quiet, overnight implied volatility gauges jumped to 45%, their highest level since around the Brexit referendum vote in June 2016 as investors braced for a rocky night.

Voters headed to the polls on Thursday in an election that will pave the way for Brexit under Prime Minister Boris Johnson or propel Britain towards another referendum that could ultimately reverse the decision to leave the European Union. 

Investors in the cash market have bet on a Conservative Party majority.

(Reporting by Saikat Chatterjee Editing by Tommy Reggiori Wilkes) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713; Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))