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SHORT STRANGLE STRATEGY: USDINR

Share Written By
Rahul Gupta

Head of Currency Research

18 Aug 2020

The short-term outlook for USDINR remains sideways. The much-awaited trigger was the US-China trade talks scheduled for Saturday, however, it got postponed with no new agreed date. Market participants were expecting the trade war to escalate, while the postponement in the trade deal states that there are no signs of the deal to be in jeopardy. Also, traders are brushing aside the no progress towards US COVID-19 stimulus package and the volatility seems to have dropped. The USD/INR 1-month ATM Volatility has dropped to 4.6% from 5.77% as on Aug 3, indicating that traders are preferring to remain on sidelines. Also, USDINR PCR (Put/Call ratio) has fallen to 0.78% from 0.85% seen last week. 

The currency pair finds immediate support around 74.70 and a close below that will trigger a fall towards the crucial support around 74.50. While the immediate resistance is 75 and the next one is 75.25. A close above 75.25 will push the pair towards 75.50. In absence of lack of fresh triggers and likely RBI buying in the forex market, we expect we USDINR spot to trade in a broader range of 74.50-75.50. According to Option Max Pain, the USDINR August expiry will come close to 75. Options trading indicates that the pair will move in a range, as both call and put options of most strike prices shed open positions. So traders could consider a short strangle on USDINR.

 

Short Strangle Strategy 

USDINR 27th August 2020 Expiry –

 

Sell 75.50 Call @0.0650 

Sell 74.50 Put @0.0850

Total Premium Received: 0.1500 

Target              -:          0.0000

Stop loss         -:          0.2500

Max Loss        -:          Unlimited

Max Profit       -:          0.1500

BEP                 -:          74.35-75.65

View                -:          Sideways