Hypothesis

OK so here is my hypothesis on my pairs trade...

You have two correlated pairs, with similar price, but one is acting more poorly than the other (eur/usd v gbp/usd).  As Euro is fundamentally being hammered, and Cable (gbp/usd) is relatively UN-affected, the euro is undervalued compared to the cable. 

Cable bid/ask: 1.5475/1.5477
Euro bid/ask: 1.2484/1.2486

 Now as you want to remain delta neutral, lets use the premise that we are going to keep each portfolio around $160 000 (or as close as possible) denominated in USD.

so 154 770 usd buys 100 000 gbp.
and 100 000gbp gives you 154 750usd

124 860 usd gives you 100 000 euro
and 100 000 euro gives you 124 840usd

now as one of the two is under distress, and they are both correlated as they are both listed in relation to usd, we will expect they will revert to a mean value.

So I want to sell the stronger, and buy the weaker so that when they converge on the mean, one will profit more than the other.

So to keep this as a ledger, I will list as a debt/credit using brackets () as debts.

Day 0:
GBP (100 000)
USD 154 750

Euro 123 938.81
USD (154 750)

so this shows that as the correlated pairs rise, I will lose money on GBP but make money on Euro.  As I feel Euro is already undervalued, due to recent financial events, I think once it clears that we will see a flood back into euro, raising the price.

more to come...