Alert

Looking for even more trade ideas? Sign up for Alpha Boost, a FREE email from quiet foundation!

Truth or Skepticism: Brexitaphobia

Jun 22, 2016

By: Josh Fabian

If you happened to catch this week's live episode of The Long & Short of It, you'll remember that Dylan and Vonetta discussed how the English language keeps adding new words to its lexicon by mashing multiple words into two or three letter combinations so ideas can be expressed in 140 characters or less. Case in point: the portmanteau du jour, “Brexit.”

The long and drawn out debate over Great Britain leaving the European Union (i.e., Brexit) will be put to a vote tomorrow. It's nearly impossible to watch or read any news without coming across some poll regarding a possible Brexit.

Dylan wants to know how a tastytrade polliwog, such as himself, can capitalize on Thursday’s vote. He correctly points out future fear is overpriced, causing Tom to display a proud father-like smile. Still, Dylan wanted guidance on what products specifically he could trade for this particular binary event.

Tom explained that he has already sold premium around FXE (currency ETF for the Euro), the British Pound and the Euro. He has also closed out many of those positions as volatility fell. As Tom explains, trading binary events is not about correctly picking market reaction. It is about trading when the marketplace will reprice that event.    

Last week, volatility moved higher by nearly 30% because of the uncertainty surrounding Brexit. This week, volatility is giving back some of that move as Brexit looks more unlikely. And that is where tastytraders can make their trades.


We cannot predict markets or how they will respond to events. What we can mathematically rely upon is the mean reverting characteristic of volatility. As volatility moves up, reflecting pent up fear, premium becomes very overpriced. Eventually that fear subsides, reverts to its mean and with it, premium collapses. We want to sell that premium into high volatility then buy it back as volatility erodes.


Josh Fabian has been trading futures and derivatives for more than 25 years.

For more on this topic see:

Truth or Skepticism | Brexitaphobia: June 21, 2016

Tasty Reflections: The Fed, Gold, and Brexit: June 17, 2016


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on tastyworks.com.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”). tastytrade is a trademark/servicemark owned by tastytrade.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on quietfoundation.com is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information on this site should be considered general information and not in any case as a recommendation or advice concerning investment decisions. The reader itself is responsible for the risks associated with an investment decision based on the information stated in this material in light of his or her specific circumstances. The information on this website is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading in derivatives and other financial instruments involves risk, please read the Risk Disclosure Statement for Futures and Options. tastytrade is an investor in Small Exchange, Inc.

© copyright 2013 – 2021 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on tastytrade.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.