Brexit No Deal – Custom Payoff Strategy

Here we look at constructing a customized payoff for this event.

Betting site odds are 7/1 for No Deal: Bet $1000 on No Deal

Buy ATM GBPUSD Call for $2000 at strike 1.2650 (spot is at 1.2640) - breakeven is at 1.2850 which is 1.7% up (if including loss from bet, 1.2950, which is 2.5% up)

Deal No Deal
GBP up -1000 from Bet

+ ??? from Call

Net > -1000

+7000 from Bet

+ ??? from Call

Net > +7000

GBP down -1000 from Bet

-2000 from Call

Net -3000

+7000 from Bet

-2000 from Call

Net +5000

Limited risk payoff with maximum downside of -$3000

Assign probabilities into the 4 scenarios to get expected value, example:

Deal No Deal
GBP up 70% 5%
GBP down 5% 20%

Unfortunately, I think that when the Deal scenario plays out, the GBP will not rise enough to cover the cost of the bet and the premium paid.

Also, I don't have access to online betting sites, so this will only remain a theoretical trade.