Use straddle strategy to manage Brexit contingency profitably

Even as BREXIT contingency keeps markets on tenterhooks traders with a risk appetite may well be designing straddle strategy with an expectation to gain from extreme volatility that may follow post the outcome of one of the most important global events of this year so far. 

Straddle strategy is designed involving option contracts in the derivatives market with a simultaneous purchase of call option and put option of similar strike price. In current scenario, with Nifty hovering around 8200 levels in cash markets, a bet on heightened volatility post BREXIT event may fetch some gains as Nifty can move anywhere between 8400 on higher side and 8000 on the lower side depending upon  the outcome.

Straddle strategy is executed when a trader is not sure which way the markets will move but are convinced that post the event, the markets will move substantially in either of the direction depending upon the news. 

With no surety on which side the voting will be, the only plausible strategy for traders to gain from volatility should be a straddle strategy. The call option premium for the Nifty strike price 8200 call option (CA) is at 107.75 at 11 am on Thursday while the put option (PA) premium for Nifty strike price  8200  is 105.35.

The opinion polls suggest there is 50-50 chance on BREXIT. British Prime Minister while urging UK residents to vote against BREXIT, highlighted how bad it would be for the British economy. While everything revolves around economy and the impact BREXIT may have on the economic well-being for UK residents for James Cameroon, Boris Johnson, the Conservative Party MP has been asking Britishers to take back control of Great Briton and its destiny by voting for "Leave". 

Even as UK residents have been swapping Great Britain Pound (GBP) for Euro with the expectation that GBP may fall considerably against Euro, even the best of speculators are not able to identify the trend as to which way the voting will go on Thursday. 

Nifty straddle strategy could be the best trade on a historic day like Thursday when the whole world eyes the BREXIT vote outcome which is only hours away from now.