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Last Updated : May 26, 2020 08:03 AM IST | Source: Moneycontrol.com

Adopt Bull Put Spread strategy as rupee is heading towards 77/USD

Traders can go for bull put spread where ATM put option can be sold and OTM put option can be bought to cap the downside risk.

Moneycontrol Contributor @moneycontrolcom

Rudra Shares and Stock Brokers

Dilemma between bulls and bears continued last week also which kept the USD/INR in the narrow trading range and the currency pair closed with the weekly gain of 12 paise at 75.95 per dollar. Stimulus measures unveiled by the government didn’t help the Indian Rupee and the phase of its depreciation against the US Dollar is still intact. Last week, subdued movement of the currency pair provided a latent indication that we could continue to see the positive bias in the currency pair in coming days.

A “bullish harami” pattern was witnessed on the daily chart recently but the buying was not triggered as the prices couldn’t manage to close above the high of the pattern and kept trading in a range throughout the week. Last trading session of the week has revived the bullish sentiments again with the big green candle suggesting that bulls are likely to continue having an upper hand in coming days.

Close

Medium term moving averages ribbon is showing no sign of convergence and likely to provide support to prices on every dip however short term moving averages have shown an initial signal of breakout of a trading range as the upward slope is shaping up again after a recent contraction. RSI is trading in a sideways zone but has developed an upward curve recently indicating that bears are likely to rest on the backseat for the time being.

Image22552020USD/INR DAILY

Interesting bullish move is developing on intraday charts where the hourly chart has given initial indication that the phase of consolidation might get over in the coming days. RSI has bounced back from the major support levels and falling channel breakout has taken place recently. Short term base has shifted mildly upward to 75 from 74.5 level for the coming week and bounce back can be expected on every minor dip.

FIIs figures analysis & fundamental triggers

Bearish sentiments for Indian Rupee are still intact as foreign institutional investors have pulled out more than Rs 6920 crores from the market. FIIs have been the net buyers throughout the week in spite of the recent stimulus packages which is likely to further damage the dampening sentiments of INR. Apart from it, the 8th consecutive rate cut from the central bank by 40 basis points is making the situation even worse for INR.

The interest rate of the country is directly related to the currency sentiments of domestic country, high interest rates attract more foreign funds in the economy which in turn generate essential liquidity and vice versa. RBI has slashed the repo rate to 4 percent which would eventually result in depreciation of INR and USD/INR is likely to propel till the level of 77 gradually in coming days.

INR against other major currencies

Apart from USD, the picture of Indian Rupee is quite stable against other major currencies. Strength has been witnessed against GBP where INR is trading at 92.5 per GBP and substantial appreciation of more than 2.5 rupees has registered from recent low.

Against the Euro, the picture is quite different where depreciation of approximately 0.78 paise has been registered in domestic currency and the currency pair settled at 82.80

To put things into perspective, it’s quite clear that a bullish trend in USD/INR is intact and resumption of uptrend is expected in the upcoming week. Currency pair is likely to head towards 76.40 and then 77 gradually.

Trading strategy

Considering the setup mentioned above and upcoming truncated week, we believe theta depreciating bullish strategy can be adopted. Traders can go for bull put spread where ATM put option can be sold and OTM put option can be bought to cap the downside risk.

Sell USD/INR 76 PE @ 0.2550
Buy USD/INR 75.75 PE @ 0.1225

Maximum gain 0.1325

Traders can capture a maximum gain of up to 0.1325 in the strategy with decent risk reward.

NOTE - Option premium resembles the closing price as on May 22 of May 27 contract.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on May 26, 2020 08:02 am
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