Thread by @vikas_bazaz

Want to understand what makes #USDINR interesting from an individual #option trader perspective.

Let's try to understand this in this thread. USDINR has both weekly and monthly options contract which are fairly liquid. Today was weekly expiry.

Weekly options expire every Friday at 12:30 pm and monthly options at 2 days prior to last working day of the month. Margin applicable in USDINR is normally between 2.5% to 3% depending upon volatility.

Margin for one lot of USDINR #straddle (74.50 July 30 expiry - weekly contract) is roughly Rs. 2600/2700 and premium received is around 35p, which on one lot comes to Rs. 350 ($1000*0.35).

On top of this, if one hedges the same by buying the wings, say 74 PE, costing 0.03p and 74.75 CE at 0.0975p, the net premium received comes to 22p (0.35 - 0.1275).

One can keep the fly at equal distance as well, depending upon one's view.

Now comes the extraction part - how much one can extract/expect to make out of this net premium at the end of next expiry on July 30. This depends upon the volatility.

And this is where USDINR gets more interesting for #optiontraders. Margin is a function of volatility. Lower the volatility, lower the margin.

Right now, implied vol in USDINR is 4.5% to 4.7%, which in turn is a function of realized vols and so the margin.

So finally, if one is able to extract even 30% of net premium, the net comes to 0.06p, which in Rs. terms comes to Rs. 60. Calculate your RoI and extrapolate this on 10/100 or 500 lots. Margin required for Iron butterfly is around 1600/1700 per lot.

If this looks somewhat interesting, it becomes more interesting with #TradeFreePlan.

Let's learn, adapt and grow.

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