Brexit, June 2016: right on the vote, wrong on the aftermath

On the day of the referendum, bookmakers implied a Remain vote at about 90%. The Euro Stoxx 50 had gained 8.6% in seven sessions. On trading floors, the question was settled.

Where the consensus came from

Most people pricing the vote knew Britain through the City and Canary Wharf. I knew a wider England, from years of travelling to watch football. It did not sound like the desk.

What others traded

Around me, some sold weekly puts on a vote seen as settled. Others bought straddles for a volatility explosion that was already in the price: the VSTOXX had peaked a week before the vote.

My book: set for Leave, flat on volatility

I was long gamma on the Euro Stoxx 50, built with downside structures: put spreads and put ratios. It was a view on direction, not on implied volatility.

24 June 2016

The Euro Stoxx 50 fell 8.6% in one session, its worst day on record at the time. Yet the VSTOXX closed below its peak of the week before. Direction paid. Volatility did not.

What I did not see

How fast it would be absorbed. I expected weeks of stress. The low came on the second session. By 30 June the index was back above its mid-June level, with the VSTOXX lower than before the vote.

What I kept

1. I check where a consensus was formed before I trust it.
2. After a scheduled event, implied volatility deflates, whatever the result.
3. I plan the exit before the event, not after.