The volumes on the Indian rupee options soared after India’s strikes in Pakistan, suggesting that the currency may go through a volatile patch on the back of the heightened tensions between the two nuclear-armed neighbours.
The notional value of dollar-rupee options traded in the United States jumped to nearly $4 billion on Wednesday, about thrice their daily average over the last year. Firms trading over-the-counter derivatives in the U.S. are required by law to report transaction details to a registered swap data repository.
The surge in volumes did not reveal a notable directional bias. The split between call and put options remained fairly typical, with the notional volume of calls
Other market parameters were broadly aligning with signals from rupee options, suggesting limited financial market fallout from India’s military strike in Pakistan on Wednesday.
Notably, near-term volatility expectations for the rupee were largely unchanged and hedging costs were lower than before the strike.
The 1-month dollar/rupee forward premium dropped to around 15 paisa, a year-to-date low, while the rupee’s 1-month implied volatility did not sustain at the two-year high.
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