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Trading USDINR option contract is a part of the currency exchange options trading. In this tutorial with FX options, we are about to share 4 basic types of currency options trade, along with credit spreads. Options is a type of derivative where you can earn a higher profit with lower risk, depending on your options trading strategy. For this reason, options are widely popular among major investors. Before proceeding further, you need to understand the basics of options trading & its terms:
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Indian National Stock Exchange(NSE) currently allows up to trading 7 types of currency option contracts.
| Currency Pairs | Lot size | Tick Size | Strike Price Difference | Options Style |
|---|---|---|---|---|
| USDINR | 1000 USD | INR 0.0025 | INR 0.25 | European |
| EURINR | 1000 euro | INR 0.0025 | INR 0.25 | European |
| GBPINR | 1000 pound | INR 0.0025 | INR 0.25 | European |
| JPYINR | 100000 yen | INR 0.0025 | INR 0.25 | European |
| EURUSD | 1000 euro | 0.0001 | 0.005 | European |
| GBPUSD | 1000 pound | 0.0001 | 0.005 | European |
| USDJPY | 1000 USD | 0.01 | 0.5 | European |
Last updated on Feb, 2019
All these years with modern technology and global economy NSE has improved a lot. A few years back, there was no opportunity to trade GBPUSD & EURUSD, the highly traded currency pairs in the forex market. Now you can trade forex legally in India with NSE currency options contract.
Options strategies:
Example: USDINR option current price: 63.50.
With the SPAN calculator below, you can find how much premium you will receive in case of selling a currency options contract & how much premium you will pay in case of buying a currency options contract. Buying an option contract doe not required to have any margin. But in case of selling options, you need to have enough balance as margin.
Enter derivatives, currency options and select strike price. Type lot size. This will give you below data for span margin. By default, it will show the minimum available lot size. Then the most important part, select “sell” not buy. Otherwise, we will not be able to know how much premium you can either receive or pay.
This is the most efficient method to calculate premium in real time. Now follow the below strategies.
1. Long Call / Buy Call:
Under this scenario, if closing price or current price gets above the strike price then you will receive profit.
| Current Price | Strike Price | Options Type | Options Price | Premium |
|---|---|---|---|---|
| INR 63.58 | INR 63 | Call | INR 0.6875 | INR 687 |
Let’s say you have predicted, that the price will stay above 63. So we will choose strike price to be 63. If you buy call option then you need to pay premiums. Here loss is limited (maximum the premium) & profit is unlimited. See the picture below, our net premium is only INR 687, the money which you need to pay. Then if USDINR goes above 63 till expiry, then you will make better rewards for the taken risk. This is one of the best USDINR trading strategy with lower risk.
2. Write Call / Selling Call option:
Under this scenario, if closing price or current price gets below the strike price, then you will receive profit.
| Current Price | Strike Price | Options Type | Options Price | SPAN Margin | Total Amount Required |
|---|---|---|---|---|---|
| INR 63.58 | INR 63 | Write Call | INR 0.6875 | INR 687 | INR 2221.97 |
This is the opposite of long call option. Let’s say prediction is price will stay below 63. So choose strike price of 63. When you will sell this option, you receive the premium. Here loss is unlimited & profit is limited. Pretty dangerous though.
3. Long Put:
Under this scenario, if closing price or current price gets below of the strike price, then you will receive profit.
| Current Price | Strike Price | Options Type | Options Price | Premium |
|---|---|---|---|---|
| INR 63.58 | INR 63 | Put | INR 0.0075 | INR 7.5 |
Let’s say prediction is price will stay below 63. You will pay the premium with limited loss & unlimited profit.
4. Write Put / Selling Put option:
Under this scenario, if closing price or current price gets above the strike price then you will receive profit.
| Current Price | Strike Price | Options Type | Options Price | SPAN Margin | Total Amount Required |
|---|---|---|---|---|---|
| INR 63.58 | INR 63 | Write Put | INR 0.0075 | INR 128.26 | INR 1120.76 |
Let’s say prediction is price will stay above 66. You will receive the premium with limited profit & unlimited loss.
Current USDINR chart:
In this chart below, we can see USDINR is basically in a downtrend, but currently correcting. Therefore buying put option with strike rate of 64.50 will be less risky. The put option will also be “in money” mode.
NOTE:
In money option contract premimum is costly, as the option is already in profit.
Conclusion:
The profit structure might get changed base the contract expiry date, means how many days it left before expiry, changes the options value. Therefore, along with the technical analysis, choosing the right option contract is also important. Among the 4 strategies explained above, all options buying is a good choice. Because buying an option gives you a chance to limited loss & unlimited profit. Selling options is for advanced traders. Generally, they sell an option contract for hedging a position. Keeping a naked option (writing option or selling option) contract is highly risky.
In order to learn how to read an option chain or practical example of options trading with NSE, check our other writings:
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