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USDINR Hedge strategies using options

Written by QuantArt Market

Forex Hedging | 10 min Read

Published on: 10 th  November 2020

Libor Transition– Impact on Indian corporates

If you have USD payables, you are possibly concerned about the volatile market where both side movements can happen.

It is important to remain hedged. While forward hedge can lock your rate, options can allow you to benefit when USD softens against INR.

The hedge instruments which you can use are as follows –

  1. Forwards – locks at a rate.
  2. Plain call – right to buy at the strike but no obligation if INR appreciates below the strike.
  3. Call spread – no obligation, right to buy at buy call strike, and protection ends at sell call level. Above sell call level, the benefit of spread will be on your account.
  4. Seagull – right to buy at buy call strike and protection ends at sell call level. Above the sell call level, the benefit of spread will be on your account, obligation below the lower leg (sell put level).
  5. Capped forward – right to buy at buy call strike and protection ends at sell call level. Above sell call level, the benefit of spread will be on your account, obligation below the lower leg (sell put/buy call level).
  6. Range forward – right to buy at buy call strike, the benefit of appreciation till the sell put strike. Obligation to buy at sell put level if spot goes below sell put level.

Here, we present current indicative prices of some option structures which can provide you protection and at the same time some benefits if USD depreciates against INR.

Maturity: January 2021 end
Spot reference : 74.10

Sl No Strategy NameCost
1Forward0.56
2Plain Call strike at 74.11.13
3Plain Call strike at 750.71
4Call Spread (Buy Call at 74.1/ Sell Call at 75.5)0.61
5Call Spread (Buy Call at 74.6/ Sell Call at 76.5)0.58
6Seagull (Buy Call at 74.1/Sell Call at 75.5/Sell Put at 73.6)0.23
7Seagull (Buy Call at 74.6/Sell Call at 75.6/Sell Put at 73.6)0.01
8Capped Forward (74.1 to 76)0.17
9Range Forward (Buy Call at 74.65/Sell Put at 74.1)0.29
10Range Forward (Buy Call at 75.4/Sell Put at 73.9)0.08

For more pricing and discussion on the strategies, contact us 

Check out our other article on EURUSD Hedge strategies using options and LONG TERM USD LOAN HEDGING COST For a one-on-one video presentation on these points fill-up the form below.

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