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USD INR Options Trading Strategies Beginners Guide to Trade

Indian Rupee slips below 83 mark against US Dollar

Options trading is the underlying stocks, commodities or currency trading into the market with various options to buy or sell the contract. In the currency market, there are various currencies traded against each other giving multiple opportunities for traders.

Before moving to USDINR option trading we need to understand options trading. The option chain contains the chain of CALL and PUT with different strike prices and premium prices of the same available for the traders to make positions.

In currency trading options trading is the combination of different currencies like USD/INR, USD/GBP, and USD/EURO options with various strike prices. In India USD/INR is popular in the currency options trading market with various strike prices available.

Also Read: Currency Trading: What is Forex Trading & How Does it Work

What is USD-INR Options Trading?

In the currency trading market currency trading is done in pairs one currency is the base currency and another one is quotation currency.

If you see base/quotation, it means it is the value of the quotation currency, and in the case of USD-INR trading, USD is the base currency, whereas INR is a quotation.

Hence, if you buy a USD-INR pair, you expect the pair value will rise. And we talk about the currency pair price, it is inclusive with bid and ask prices, and this would be the actual price at which you can buy and sell the pair of currency.

Also Read: Options Trading for Beginners

In the Currency derivatives market, you can find various currency pairing options to make positions and trade. You can choose from popular currencies like the US Dollar, UK Pound, Euro and Japanese Yen to pair with INR.

However, in the Indian currency derivatives market, the INR-USD pair has become the most popular pair and denominated in the currency derivatives market. You can make positions in currency derivatives for trading and speculation for managing your underlying exposure to the currency. Hence find out the benefits of USDINR option trading.

Why Choose USD-INR Option Trading Strategy?

Choosing the combination of USD and INR for options trading in the currency market have multiple advantages for the traders, let's find out.

Any Indian can Trade: Any resident Indian or NRI can trade or make positions in the USD-INR pair, even if there is no underlying, up to a limit. Different from the forward market, where you have options to hedge any underlying currency in which you have exposure.

Low bid-ask Spreads: The bid-ask spreads in USDINR is low as 0.0025 in the near-month pair. This low spread reduces the risk of liquidity in the market. Additionally, USD-INR is one of the highly liquid pair in India gets the wide-spread quotes from bid and ask side with the least risk.

Transparent Market Mechanism: USD-INR pair is based on the transparent market mechanism, which is quite different from the forward market mechanism. This transparency makes it more preferred for retail traders who usually have limited information.

Hassle-free Trading Platforms: If you choose the USDINR for trading in the derivatives market, you can access the trading platforms either through your broker or directly from your internet trading platform which adds to the convenience and provide hassle-free trading.

How USD-INR Options Trading is Different from Equity Trading? 

Before you start trading into currency options trading, you also need to understand how it is different from equity trading. In the equity market, you speculate in equities while considering the price of the equity will go up shortly.

While on the other hand, when you buy the USD-INR, you are actually betting on the US dollar to appreciate or in other words, you are expecting the INR to depreciate against the US dollar. Conversely, if you are expecting that in near future the INR will appreciate against the dollar then you should be selling the USD-INR futures.

Whereas, at the settlement end, unlike commodity trading, all the currency derivatives contracts are settled on the last working day of the month which will also be the date for interbank settlements in Mumbai. Hence, all USD-INR pairs or INR with other currencies such as pairs with Pound, Euro and Yen necessarily cash settled.

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    What Affects the USD-INR Pair Prices?

    The price of the currency moves because of many factors like economic conditions, political conditions forex trade, and demand and supply of the currency in the international or domestic market. Similarly, USD-INR prices are affected due to any major events and any of the aforesaid reasons.

    PIP or point in percentage is another reason that affects the price movement of currencies. Globally in forex trading market the currency is quoted up to the 4th decimal point.

    PIP, means the least difference at the fourth point can make a big difference in the foreign exchange reserves. And in foreign exchange trading, PIP is the very basic unit when reference rates are quantified by the central bank in India (Reserve Bank of India), the quote is till the 4th decimal point.

    PIP is fixed at 0.0025 for USD-INR also called tick size. The lot size is usually fixed at USD 1,000. Hence, you can make Rs 2.5 per pip in USD INR (lot size x pip).

    Currency options are quite similar to other types of options i.e Call and Put such as stock, index, and commodity options. Their terminology is also the same as in case of price going upside we can buy call or vice versa. Also USD-INR have weekly expiry mechanism same as we have witnessed in Index options but only difference is they are quoted and traded in pairs. Currency options are similar to stock options in that they include a striking price, expiration date, a maturity, and a spot price and an option price. Currency options, like stock and index options, provide buyers and sellers with the opportunity to exercise the "call" and "put" of their contracts.

    Currency options works identically like stock and index options, grant the holder the right but not the obligation to purchase or sell a specified currency pair at a predetermined price Options are available on the following pairings involving the Indian rupee: USDINR, GBPINR, EURINR, and JPYINR. Below image  displays most active USDINR options .

    Terminology

     

    Terminology

    1.   The right to purchase a currency pair is known as a "call option," while the right to sell it is known as a "put option."

    2.   Time to maturity refers to the number of days between the date of entering into the contract and the expiration date. Strike price refers to the pre- specified price, and expiration date refers to the day at which the strike price is applicable.

    3.   A premium is paid by the buyer to the seller of a call or put option. The item which is bought or sold is also called an underlying or underlying asset, and in the case of currency options, it is the currency pair.

    4.    The buyer has restricted loss but infinite profit, and the seller has the unlimited loss but restricted profit scenario.

    ITM / OTM / ATM Currency Options

    Same in the case of index or stock options , when will currency options benefitted? If the spot price of the currency pair is greater than the strike price on the maturity date, for instance, the buyer of the call option will exercise his right to buy. Conversely, a put option buyer will only sell if the underlying currency's spot price is below the option's strike price on the option's expiration date. Of course other charges remain there but we can ignore them to ease it out.

    Now how much money the buyer of an option stands to make, lose, or keep depends on whether or not the option is "in-the-money," "out-of-the-money," or "at-the-money" at the moment of exercise. Therefore, alternatives can be broken down into three distinct groups

    In the money (ITM) option:

    • For Call Option it is ITM if the (Spot Price > Strike Price)
    • E.g. If USDINR call option of Rs.82 strike is having spot price of Rs.82.50, it is ITM
    • For Put Option it is ITM if the (Strike Price > Spot Price)
    • E.g. If USDINR put option of Rs.82 strike is having spot price of Rs.81.50, it is ITM

     

    Out of the money (OTM) option:

    • For Call Option it is OTM if the (Strike Price > Spot Price)
    • E.g. If USDINR call option of Rs.82 strike is having spot price of Rs.81.50, it is OTM
    • For Put Option it is OTM if the (Spot Price > Strike Price)
    • E.g. If USDINR put option of Rs.82 strike is having spot price of Rs.82.50, it is OTM

     

    At the money (ATM) option:

    For Call Option and put options it is ATM if the (Market Price = Strike Price)

    For implied volatility please click on the link  https://learn.moneysukh.com/implied-volatility-in-options-trading-importance/  to understand better.

    For other options strategies please click on the link https://learn.moneysukh.com/best-option-strategy-for-bearish-market/

     

    USD INR Option Trading Strategies

    Just like the equity derivatives market, there are various popular USD INR Option Trading Strategies that you can use for trading in the currency market.

    Action Trading Strategy: One of the most popular strategies used by traders that mainly depends on the bulls/bear of the price action.

    Trend Trading Strategy: When traders decide to trade as per the trend in the market, they follow the trend trading strategy in which currency price movement is identified by the traders before deciding on an entry point into the trade.

    Counter-Trend Trading: When traders chose the trade against the trade, it is called counter-trend trading. Under the counter-trend trading range, a specific currency price range is used for trading.

    Breakout Trading: Just like above said trading, in this trading strategy traders enter the market at the point when there is a breakout in the earlier range of trading.

    Position Trading: In this strategy, traders use chart analysis to make the positions but they need deep knowledge and experience to interpret the chart.

    Carry Trade Strategy: This currency trading strategy involves buying the currency that has a high rate of interest and selling the currency having a high rate of interest.

    Alto trading

    How to Trade in USDINR Options in India?

    The best way to start the trade-in USDINR options in India is to choose the right platform providing currency trading facilities with services in the currency derivatives market. Moneysukh is one the leading currency trading platform in India providing the most advanced and dynamic platform to trade in USDINR and other currencies traded in the derivatives market in India.

    Along with the trading facilities, Moneysukh also provides tips and recommendations backed by trading experts and analysts helping clients to generate the maximum profits and enhance their wealth. So, what are you waiting for, apply now for currency trading at Moneysukh and enjoy the seamless trading experience accessible through various devices.

     

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