Bets emerge on hefty sterling rise if Britain votes to stay in EU

By Anirban Nag

LONDON, May 6 (Reuters) - Emboldened by bookmakers' odds that point strongly to Britons voting to stay in the European Union, some speculators are betting the pound could soar as much as 20 cents from current levels after next month's referendum.

According to Thomson Reuters (Dusseldorf: TOC.DU - news) data, those bets, placed in recent days in the options market, are for sterling to hit $1.65 -- a level not seen since September 2014 -- the day after the June 23 vote.

Options that would pay out if sterling hit 1.5890 have also been placed, for June 27. Dealers say the trades are few in number, but if polls show the "Remain" camp edging ahead, demand for such options could gather pace.

So far, speculators have been mainly selling the pound, and using options to hedge against or bet on it falling to as low as $1.25 on a vote to leave.

"It (Other OTC: ITGL - news) is probably positioning for a huge short squeeze in sterling in case Britain votes to stay in the European Union," said Ned Rumpeltin, European head of FX strategy at TD Securities, referring to the demand for option strikes at $1.65.

Sterling hit a four-month high of $1.4770 on Tuesday, recovering from a seven-year low of $1.3836 struck on Feb. 29.

April was a good month for the "Remain" campaign but the gap has since narrowed and the two camps are neck-and-neck.

Despite most polls being close, bookmakers have consistently put the "In" campaign well ahead. Betting website Betfair shows the chances of leaving at around 31 percent.

Eikon readers can click cpurl://apps.cp./cms/?pageId=brexit for the latest news and analysis on the EU referendum.

With (Other OTC: WWTH - news) just over a month to go, one-month risk-reversals -- a gauge of demand for options on a currency rising or falling -- show a diminishing bias for sterling weakness against the dollar, trading at 0.8 vols compared with around 1 vol in favour of sterling weakness a month ago.

Two-month risk reversals, which capture the date of the vote, have held steady in favour of sterling weakness.

A Reuters poll taken last month forecast sterling would jump 4 percent against the dollar in the immediate aftermath of a vote to stay.

Sterling has shed 8 percent on a trade-weighted basis since December, as investors worry leaving the EU would threaten the foreign investment flows Britain needs to fund its current account deficit, one of the biggest in the developed world.

Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London, said more support had emerged for sterling in recent days.

"There is a 3-5 percent appreciation in sterling in the event of a "Remain" vote. But you may be better playing that on the euro than the dollar," he said.

(Additional reporting by Patrick Graham, graphic by Nigel Stephenson; editing by John Stonestreet)