FxWirePro: Option sentiment flips; point to further downside in USDINR

The option sentiment has flipped once again in favor of INR,

• Option sentiment has been a reliable guidance provider when it comes to trading USD/INR. The sentiment is measured by volume-based put-call ratio calculated using data from India’s national stock exchange.
• The rationale behind using the ratio is to determine which side the retail players are on and to trade against the retail sentiment. Whenever the value of the ratio is less than 1, it means that retail traders are more active on call options suggesting downside, and if it is above 1, it is better to long USD/INR as retail traders more active on puts.

Sentiment:

• The sentiment first shifted from 1.4 to below 1 in January. Since then, USD/INR declined from 71.6 area to 68.5 area.
• However, sentiment flipped last week after pointing to extreme positioning by retail traders in the call options market, only to shift back below by Tuesday this week.
• And since Tuesday, USD/INR has declined 69.7 area to 68.98 as of today.
• The ratio has declined from 1.41 on Monday to 0.68 as of today. One note of caution, the ‘0.68’ value is close to the extreme range, which increases the risk of reversal.

The chart is prepared in Tradingview.com