Can we predict currency movement with options data

[tradinglearner]

I have todays ( May 21) EOD data for USD-INR. Options data is for June.

Currency spot - 55.4 , June Futures - 55.73

June 55 PUT - 0.25 Open Interest 52240

June 56 CALL - 0.43 Open Interest 28990


My question is Can we predict the USD-INR currency movement for very short term ( below 2 weeks) by the above data. It clearly looks the movement is up. But The futures is already 33 paisa above the spot.

I am new to currency trading. Can we initiate a long position here?

 

[tradinglearner]

I have todays ( May 23) EOD data for USD-INR. Options Data is for June

spot 55.6 , June Futures 55.88

June 55 PUT - 0.22 Open Interest 69400

June 56 CALL - 0.51 Open Interest 77560


Two days back i asked a question. Any body who is experienced in Currency Trading, Please answer.

I am not asking for just this trading call. In General, Can we predict currency movement with options data?

 

[ashu1234]

Hi,
I don't trade currency but I do keep a track of it. You can track options OI data, but I don't think it will always help you reason being USD/INR is traded from 9 to 5 and us market opens at 7pm, so major driving force of this pair is USD and major events took place overnight, so like nifty you'll not get complete picture of underlying through options. One more reason is that major position and trades are done in futures and forward market, so not much to see currency option table here at nse. Still you can apply general rules to get some hint like currently there's huge writing up of CE 56 in May as well as June and I think expiry will be below 56.

 

[neo1599]

I have todays ( May 23) EOD data for USD-INR. Options Data is for June

spot 55.6 , June Futures 55.88

June 55 PUT - 0.22 Open Interest 69400

June 56 CALL - 0.51 Open Interest 77560


Two days back i asked a question. Any body who is experienced in Currency Trading, Please answer.

I am not asking for just this trading call. In General, Can we predict currency movement with options data?

I regret I don't make trading calls.
None of the below is to help/guide you to an actual trade, its just info.

Here's the skinny on using options to determine currency movements:

Options provide a barrier/resistance/support point for currency futures.

For example, if I have a huge options position expiring on xx date.

By huge here I mean 'worth protecting', then I will try and keep the underlying price between the levels that I want till expiry/exit.

While this may not work out if the barrier is being protected by a single entity, but if a few of the major players are manning the barrier, it is entirely possible.
Their are a lot of factors and variables which need to be monitored for the above.

So the answer to your question is:

Yes, prediction is possible. Timing(since linking to options) is all important. Lots of variables, which I can't even begin to list.

 

[tradinglearner]

Options provide a barrier/resistance/support point for currency futures.

Their are a lot of factors and variables which need to be monitored for the above.

So the answer to your question is:

Yes, prediction is possible. Timing(since linking to options) is all important. Lots of variables, which I can't even begin to list.

neo1599 & ashu1234 - Thanks for reply.

When I first saw 56 Call is at 0.43 ( Spot is 55.4) , but 55 PUT is at 0.25. I thought buyers are purchasing Call at such high level, means the USD-INR will go up. But I don't know whether my understanding is right.

My questions are

a) For very short term ( may be less than a week ) do we require to analyze other factors also. Is the call and put values not enough?

b) How do we determine High Open Interest and Low OI ( Is there any method to know the fair value for OI)?

c) Can you tell few main important factors to see before taking a USD-INR Currency position ( one month time period).

 

[ashu1234]

In my opinion relying on call and put data is not enough, reason already given that this pair is traded heavily in futures and forwards across different exchanges so options data is not enough to get entire pictures. To determine open interest high low you have to mine historical data from the nse site, download every months CE and PE data, arrange it date wise and analyze it with closing price of NSE futures and see how much open interest is build in each series, which strike got the highest open interest build up over the period of time and then you'll have fair idea of what is the highest open interest and if strike is closing above it or below it. If strike is closing below highest open interest than it means in that series option writers were successful in defending that strike. Keep tracking and you'll know all. And yes there are many other variables to look for. USD side factors like Dollar index, US indices like S&P and Dow have direct positive correlation with USD/INR and EURO/USD, our Index Nifty, gold and sometimes crude has inverse correlation. So I'll recommend you to follow these for short term as well as intraday, it helps very much.

 

[sahen]

neo1599 & ashu1234 - Thanks for reply.

When I first saw 56 Call is at 0.43 ( Spot is 55.4) , but 55 PUT is at 0.25. I thought buyers are purchasing Call at such high level, means the USD-INR will go up. But I don't know whether my understanding is right.

My questions are

a) For very short term ( may be less than a week ) do we require to analyze other factors also. Is the call and put values not enough?

b) How do we determine High Open Interest and Low OI ( Is there any method to know the fair value for OI)?

c) Can you tell few main important factors to see before taking a USD-INR Currency position ( one month time period).

Dear, I have tried using option data for prediction of price movement for many months. But it is difficult to guess whether team of operators are buying or selling particular series. ..... So impossible to find directions. You need to combine option data with some good technical .... technical analysis being in 1st place and option data to support technical analysis