Monday, 8 September 2014

Scottish Referendum Hedge

The Scottish referendum on independence on September 18th has become extremely relevant to financial markets, with the new Sunday Times poll over the weekend suggesting for the first time that the Yes vote will prevail.

The damage to the pound has been immense. Already falling, it has fallen off a cliff since Sep 1st, and this weekend gapped a whole cent lower against the US dollar, and is not showing any signs of recovery.

GBPUSD gapped down nearly 1% over the weekend

Similarly shares in Scottish FTSE companies such as Weir and RBS fell by an even greater percentage.

However, strangely, the betting odds on a 'Yes' vote lengthened today. Spreadex were quoting £1 pays 3 yesterday and today are quoting 3.1 (21/10 in fractional odds which exclude the stake return), and this is repeated with all the other bookmakers

The aggregate site shows that about two-thirds of the bets are for a Yes vote, yet the prices continue to reflect a No vote as most likely.

My advice to you if you have difficult positions (such as in GBPUSD or RBS) is to hedge them by placing a bet on the Yes vote. YouGov say they are going to win, so does the market, and yet you can more than triple your money. Another option is to spread-bet the result with a firm such as The odds are similar (currently quoting 7.7, which pays out 25 on a win, zero on a lose)

If the Yes votes win, you will get a nice return, and possibly a Yes win is now priced in. If No wins, there will be a surge upward in market prices which will cover your lost stake.

I wouldn't normally recommend betting as an investment decision, but the prices are all wrong for the data on this one. You could of course take the alternate view that the bookies alway know best, 'No' will prevail and load up on RBS/Weir shares and GBPUSD contracts.

Think about it.

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