What happens if USDINR put option expires in the money?

F&O
1

How are currency options settled? Do you require any additional margins beyond premium paid?

I was worried if there is a chance of physical settlement or devolvement into futures like in stocks/commodities.

Please explain with example if possible. Say I bought 82.75 PUT Aug 29 expiry at 0.1100. It’s LTP 0.1075 at time of market close. If I held 100 lots till expiry, what will happen?

I cannot find a clear explanation anywhere regarding options. Thanks.

2

Currency options are cash settled. There is no additional margin requirement.

Once the Currency F&O expire, these are settled according to the RBI Reference Rate on that day, which is announced at 1:30 PM by RBI.

For example: if the RBI Reference Rate is 82.6400 then your 82.75 Put option will expire ITM and will be settled at the intrinsic value (Strike Price - Settlement Price).

It will be 0.1100 (82.75 - 82.64) and the amount will be credited to your trading account.

You can check the reference rates on NSE, BSE and FBIL website.

2 Likes
4

Thanks for the reply @ShubhS9

From varsity materials and this answer, it seems currency options involve much less risk than stock options or commodities options since one would never need additional margin than premium already paid (option buying). No physical settlement or devolvement into futures either.

In fact they might be preferable to index options too since both are cash settled but transactions are cheaper to enter in currencies…

Then why the lack of popularity? Is there a catch? Am I missing some significant possible risk to retail traders like me?

5

For me I don’t do that as I have sentimental reasons to not long-trade USDINR or any pairs with INR base. That’s one reason why I don’t trade currencies right now besides the lack of liquidity. If cross-currencies were allowed, I’d trade them even with less liquidity.

I also have a rule to never trade in items I own shares of. I own a few INR.

6

I understand your sentiment. Was just curious if there was risk/catch I was overlooking which could cause significant loss.

7

Risk:

  1. Overnight risk is huge as some major event leads to huge gaps .GBPINR gaps around 4% which was i think 20x the straddle price ( i don’t rem the exact figures).
  2. Strikes are far apart like 250 points .So ,very less strikes leads to under and over pricing.
  3. 2.5 points is tick so you can’t do very short term trades as you will incur charges
1 Like
8

Hmm good points. Thanks :+1: