Being a truncated week, it would be prudent to take advantage of theta decay and call option of 78 strike price can also be sold in the ratio of 1:2.
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Amid heavy volatility and domestic as well as global chaos, bulls continued having an upper hand in USD/INR. We have been continuously maintaining the bullish stance in the currency pair for the last few weeks and bulls have eventually tightened their grip once again after a mild dip.
Bullish continuation pattern has been witnessed on the chart and the currency pair has closed with the weekly gain of 78 paise at 76.25.
In upcoming trading sessions, we can expect the currency pair to trade with positive bias where 74.90 is likely to act as an extended short-term base. Prices are trading well above their short-term moving averages, suggesting that bulls are having tight control.
A huge breakout of medium-term rounding pattern formation has strengthened the bulls and much higher levels can be expected in the coming days.
Last week, the bullish candlestick pattern called “piercing line” has been witnessed at the support level after the mild retracement. Also, during the phase of the recent sharp up move, the currency pair was trading far above from its 20 day moving average which acts as equilibrium for demand and supply in the short term. Recently prices have taken support at 20 DMA suggesting that resumption of the up move had been witnessed.RSI has formed a reversal signal on the daily chart and bouncing back from important support levels, the scenario falls under the category of reversal after retracement and likely to keep the spirit of bulls intact.
The Reserve Bank of India has recently delivered the heavy rate cut of 75 basis points to provide a boost to the economy and it resulted in a sharp up move in the currency pair. As sentiments of domestic currency are directly related to the interest rate of the country, the recent cut has resulted in the depreciation of the rupee.
Lower interest rate eventually results in an outflow of foreign currency from the economy and damages the sentiments of the domestic currency.
Overall scenario suggesting that bulls are likely to take the rally forward and much higher levels can be seen. Previously the target 76 was suggested and it has already been achieved. Further, in the medium term the level of 78 and 79.5 can be expected and every dip should be taken as a buying opportunity. But as far as the current truncated week is concerned, the currency pair can move up to the level of 78.
Considering the overall scenario it's quite evident that bullish bias needs to be maintained for the near term. As the revival of uptrend is expected up to the level of 78, traders can initiate “married put” with some modification. Long positions can be taken in the future and to hedge the trade put option of 75.50 strike price can be sold. Being a truncated week, it would be prudent to take advantage of theta decay and call option of 78 strike price can also be sold in the ratio of 1:2Buy USD/INR future at 76.78
Sell USD/INR 78 CE 0.0325 (2 lots)
Buy USD/INR 75.50 PE 0.050
Profit booking range 77.80 - 78
Maximum gain up to 1.23 (subject to theta decay)
Strategy would enable the traders to take advantage of expected up move with decent risk-reward.
Note - Option premium mentioned resembles the closing price as on April 3 of April 9th 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.