Election season is in full swing in the United Kingdom. And with so much up in the air, traders are trying to find ways to capitalize on the uncertainty.
With his Conservative Party, David Cameron is campaigning to defend his prime minister position, but faces a tough challenge from the Labour Party and its leader, Ed Miliband. Complicating matters are the presence of strong candidates from the UK Independence Party, led by the brash Nigel Farage, and the Liberal Democrats, led by Nick Clegg.
The race is so tight, in fact, that many recent polls show no party capturing more than a third of the vote. And Cameron and Miliband have each warned of "chaos" if the election doesn't go their respective ways.
Noting that the British pound fell sharply against the dollar after the 2010 election, when no party won a clear majority in Parliament, Kathy Lien of BK Asset Management says investors would be wise to play for a similar outcome this time around. That means she wants to be short the pound, and long pound volatility.
"What makes this election different from 2010 is that there could be a power grab by some of the smaller parties, and that could lead to a hung Parliament, which could translate into more uncertainty and greater volatility for sterling," she said.