Archive for the 'FX Trading' Category


Covered calls in USDINR

On Friday, USDINR closed at lowest levels in the last 2 years at 65.83. Intraday INR touched lows of 65.91. EM currencies across the board have been hit by Yuan devaluation last week. Coupled with prospect of US Fed rate hike in September, global markets are nervous about EM currencies. Lot of currencies like MYR (Malaysian Ringgit), ZAR (South African Rand) and RUB (Russian Ruble) have been hitting multi-year lows. MYR has gone below 1997-98 crisis levels. Few other currencies like Kazakhstan Tenge and Vietnam Dong have been competitively devalued. In Tenge case it has been allowed to free float from peg against USD. All Oil exporting economies are suffering hard with current levels of $ 40-45 per barrel.

Don’t know if these are signs of currency war but it might turn out to be so if CNY (Chinese Yuan) depreciates further. Recently RBI governor, Raghuram Rajan commented about CNY devaluation ( As per him maybe CNY devluation is not a concern at current levels but if it depreciates further it might be a cause of worry in future. INR has been an island of calm among EM currencies and is one of the out-performer till now. I had bought August and September series USDINR futures and sold 66 calls. Buying USDINR future means you are paying roll cost which during panic scenarios like the current one turns out to be 1 percent. This was my main concern while buying USDINR futures. This was the reason I had sold 66 calls, otherwise I would have carried naked future position.


Currency Options USDINR: March series

February series for USDINR option expired on 26th February. My sold 52 puts expired worthless ( I had rolled over sold puts to March series. In march series apart from 52 puts, I have also sold 52.5 puts. In last week there has been risk off in global markets. Risk off is best reflected by the Euro level of 1.3 and Dollar Index above 82 levels (Dollar Index level is skewed by the sharp depreciation of JPY).

I was selling USDINR puts aggressively after Union budget on 28th February. IV’s were high and there was expectation that FM might announce big bang growth measures. INR rallied till 53.6 levels and sold immediately to 54.9 level by the end of budget day. I expect INR to remain weak on account of high current account deficit with periods of volatility. In case INR appreciates to levels of 52-53, it should provide opportunity to sell some more puts (But I am worried about this trade because Mr. Sudarshan Sukhani (CNBC TV18) is also bearish on INR and expects it to touch 57 level 🙂 ).


Currency Options USDINR: January series

December series for USDINR options expired today. With just four days left for fiscal cliff, it doesn’t make any sense to have large position in January series. My base case is that there should be some kind of resolution to fiscal cliff. But in case it does not happen then there might be 3-5% sell off in equities across the world. In this risk off environment high beta currency like INR would suffer.
One important development which is Rupee supportive is re-election of Mr. Shinzo Abe as Japan’s Prime Minister. He has forced Japanese central bank to fight deflation and weaken value of the yen. Yen has weakened considerably in last few days to levels of 86/USD. This might trigger Yen carry trade in 2013 and should be seen as Rupee supportive. Yen carry trade played a contributing factor in Indian market rally during 2003-2007.
Today, there was some noise from the Government about increasing diesel prices. Not sure if really they will able to go ahead and increase diesel prices. In case it is done, Rupee should rally. One contra sign which I see as INR positive is that Mr. Sudarshan Sukhani on CNBC TV18 has turned bearish on INR and see it touching levels of 57. I have become more confident that INR will not touch 57 in January series and sold few OTM calls.


Currency Options USDINR: December series

November series for USDINR options expired on 29th November as expected. In last week of November, Rupee made a dash towards 56. I don’t have a large position on either side in this series.

Given stalemate on US fiscal cliff situation, INR remains vulnerable to any global risk off trade in December last week. On the other side, Government of India (GoI) has become proactive on reforms front. If GoI is able to pass increase in FDI limit in insurance & pension, Banking act in last week of winter session of parliament, then Rupee should find support and even rally. Last week, GoI passed Land acquisition bill, Cabinet committee on Investment board (watered down version of National Investment Board) under PM. SP & BSP, who had supported GoI on FDI vote in retail (direct and indirect), are at loggerheads in Parliament on reservation in promotion for SC/ST. Government will find it tough to pass anything in Parliament on account of this logjam. On 18th December, I don’t expect RBI to cut interest rates. There might be 25 bps cut in CRR, but not in repo rate.

Last week of December should be a good time to build some position for January series. I don’t expect Rupee to breach its previous low of 57.37 in December & January.

May 2018
« Aug    

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 233 other followers


Top Posts & Pages