Weekly currency options on Zerodha

Weekly currency options are short-dated, exchange-traded options on the USD/INR rate that expire each Friday, listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) under the joint oversight of SEBI and the Reserve Bank of India . They are European-style, cash settled in rupees against the RBI reference rate, and carry a lot of USD 1,000. Zerodha lists them on Kite once the currency derivatives segment is active, alongside the monthly options and the USDINR futures.

A weekly option compresses the time premium into a single trading week, which is what draws traders to it. The premium decays faster than a monthly because there are only days, not weeks, of time value to bleed, so the contract behaves differently from a monthly USDINR option even at the same strike. This article covers the expiry mechanics and the Friday cutoff, the lot and premium arithmetic, the RBI and SEBI position-limit regime and the underlying-exposure documentation rule that binds large positions, liquidity, margins for buyers and writers, settlement, and the charges and tax that apply.

Conflict-of-interest disclosure. This article is published by the WebNotes Editorial Team for informational purposes and is written independently. WebNotes operates a Zerodha account-opening referral programme, disclosed on the pages that carry the referral link; this article does not carry it and earns no referral commission from the trading described here.

What a weekly USDINR option is

A USDINR option gives the buyer the right, but not the obligation, to a payoff based on where the USD/INR rate settles against the strike at expiry. A call pays off when the rate finishes above the strike; a put pays off when it finishes below. Because the options are European, there is no early exercise: the payoff is determined only at expiry, and there is no decision to make before then beyond whether to hold or square off in the market.

The “weekly” part is the expiry cadence. Where a monthly USDINR option runs to the last working day of the contract month, a weekly runs to the Friday of its week. Several weekly expiries are listed at once, so a trader can pick the current week or a week or two out. The near-week at-the-money strikes carry the liquidity; the contract thins quickly as you move away from the money or out to later weeks.

The economic appeal is the time-decay profile. A weekly has only days of time value, so theta is steep: an option seller collects premium that erodes fast, and an option buyer pays for a short, sharp window in which the rate has to move. This is the same reason weekly options on index equities draw heavy volume, applied to the rupee-dollar rate, where the moves are driven by RBI policy, the dollar index, oil prices, capital flows and global risk sentiment rather than by a single company’s earnings.

Expiry day and the Friday cutoff

Weekly USDINR options expire on the Friday of the expiry week. If that Friday is a trading holiday, the expiry moves to the previous working day, the standard exchange rule for currency-segment contracts.

The cutoff time is the detail that matters. Trading in the expiring contract does not run to the 5:00 PM session close; it stops at 12:30 PM IST, because the RBI reference rate that fixes the final settlement is published around midday. The exchange uses that published reference rate, not the last traded price in the afternoon, as the settlement price. A trader who plans to manage an expiring weekly into the afternoon finds it already locked to the reference rate at lunchtime.

This produces a basis risk on any weekly held into Friday settlement: the reference rate at 12:30 PM can differ from where the option last traded, and on a day with a scheduled event, a US data print due that evening, an RBI action, that gap is not trivial. A trader who wants to avoid the reference-rate gap squares off the option in the market before the cutoff rather than letting it cash-settle. The mechanics of carrying a position past the cutoff, and what happens to an unsquared option, follow the same logic set out for unsquared options on expiry , except that there is nothing physical to settle: a currency option always cash-settles in rupees.

Lot, premium and rupee cost

The lot is USD 1,000, identical to the USDINR future. The premium is quoted in rupees per dollar, so the rupee outlay for one lot is the premium times 1,000.

A weekly call quoted at INR 0.15 costs the buyer INR 0.15 x 1,000, or INR 150 per lot, plus charges. A buyer’s maximum loss is the premium paid, INR 150 in that example. A writer collects the INR 150 but takes on an open-ended loss if the rate moves against the short, which is why writers post margin and buyers do not.

Strikes are listed at exchange-set intervals around the prevailing rate, finer near the money and wider away from it. The relevant strike concepts, in-the-money, at-the-money and out-of-the-money moneyness, and the option premium breakdown into intrinsic and time value, work the same way as for equity options, with the underlying being the USD/INR rate rather than a stock or index.

The underlying-exposure documentation rule

This is the regulatory feature that most distinguishes currency options from equity options, and it binds the size of a position rather than the act of trading.

The position-limit regime is set by RBI and SEBI jointly and applies across all currency contracts on an exchange, futures and options together. A resident may run an aggregate currency-derivatives position of up to USD 100 million equivalent per exchange without producing any documentary evidence of an underlying foreign-exchange exposure. Inside that ceiling, a retail trader can buy and write weekly USDINR options freely, with no requirement to show an import bill, an export receivable or a foreign-currency loan.

Above the USD 100 million aggregate, the position must be backed by a genuine underlying exposure, and RBI rules require the client to hold and, on the broker’s request, produce evidence of it, such as trade invoices, foreign-currency loan agreements or contracted foreign-currency liabilities, within the broker’s stated window. The derivative position is then treated as a hedge of that exposure rather than a speculative bet. Zerodha monitors client positions against these limits and can require a client to reduce a position that breaches the no-documentation ceiling. For the overwhelming majority of retail traders, the USD 100 million aggregate is never approached, so the documentation rule does not bite, but it is the binding backstop on large positions and it sits on currency options exactly as it does on currency futures and on the cross-currency pairs .

The point to internalise is that the rule is about the underlying exposure, not the option style: an option writer running a large short book is subject to the same USD 100 million ceiling and the same proof-of-exposure requirement above it as a futures trader. Equity options carry no equivalent underlying-exposure regime; this one flows from RBI’s authority over foreign exchange under the Foreign Exchange Management Act 1999.

Liquidity

Liquidity is the practical constraint on weekly currency options. USDINR carries the bulk of Indian currency-derivative turnover, so its weeklies are the most active currency options on the exchange, but the depth is well below that of index equity options such as the Nifty or Sensex weeklies.

The depth concentrates in the current week’s at-the-money and near-the-money strikes. Move two or three strikes away from the money, or out to a later weekly expiry, and the open interest thins, the bid-ask spread widens, and a far strike can show no quotes at all. The consequences for a trader are concrete: use limit orders rather than market orders, because a market order on a thin strike can sweep several ticks; size positions against the visible depth, not against the notional you would like to trade; and expect to give up more on the spread when exiting an out-of-the-money weekly than when exiting an at-the-money one. Far-dated weeklies should be treated as illiquid until the week approaches and volume builds in the near-week strikes.

Margins for buyers and writers

The margin treatment splits cleanly between buyers and writers, the same as any option.

An option buyer pays only the premium. There is no SPAN or exposure margin on a long option, because the maximum loss is the premium already paid. A weekly call bought for INR 150 per lot ties up INR 150 plus charges and nothing more.

An option writer posts SPAN margin plus exposure margin , computed by the exchange and shown in the Kite order window, because a short option carries an open-ended loss if the rate moves against the position. The naked option-selling margin on a currency short moves with volatility, and on a scheduled-event day the exchange can lift the SPAN parameters intraday, raising the requirement on an open short. Check the figure on the Zerodha margin calculator before writing. Currency margins are lower than equity F&O margins because exchange-rate volatility is lower than single-stock volatility, but the open-ended-loss structure of a short option is identical, and a sharp rupee move can produce a loss far larger than the premium collected.

Settlement

Weekly USDINR options are European-style and cash settled in rupees. At the Friday expiry, an in-the-money option settles against the RBI reference rate published at the 12:30 PM cutoff: a call pays the buyer the rupee difference between the settlement rate and the strike, times the lot of USD 1,000; a put pays the difference between the strike and the settlement rate, times the lot; an out-of-the-money option expires worthless. There is no physical delivery of dollars and no manual exercise, because the options are European and cash settled.

Daily mark-to-market on a short option position runs through the day’s settlement price, debiting or crediting the writer’s ledger overnight and updating the margin for the next session, the same daily MTM that applies across the currency segment. A buyer’s position is marked to the premium and carries no MTM beyond the premium already paid.

Charges and tax

The charge structure matches the rest of the currency segment, set out in full on the Zerodha currency segment page.

Currency derivatives are exempt from securities transaction tax under the Finance Act 2004, because they are not securities under the Securities Contracts (Regulation) Act 1956, and they carry no commodity transaction tax. The absence of STT matters more for options than for futures, because the STT-on-exercise trap that catches in-the-money equity options at expiry does not exist for currency options: there is no STT to be levied on intrinsic value, so holding a currency option to settlement does not trigger the disproportionate exit cost that close-before-expiry advice on equity options is designed to avoid.

Gains and losses on weekly currency options are treated as non-speculative business income under Section 43(5) of the Income Tax Act 1961, the same as the rest of F&O : taxed at slab rates, losses carried forward eight years against business income, filed on ITR-3, with turnover computed as the absolute sum of profits and losses for the audit threshold. For any sizeable activity, confirm the position with a chartered accountant, because the audit requirement depends on total turnover across all segments and the rules change with each Finance Act.

Common operational considerations

The midday cutoff is the most frequent surprise, the same one that affects currency futures: an expiring weekly stops trading at 12:30 PM IST on Friday, not at the 5:00 PM session close, because the reference rate that fixes settlement is published around midday. Plan any expiry-day management before the cutoff.

Liquidity is the second. A weekly strike away from the money, or a far-dated weekly, can show a thin or empty order book; this is normal for currency options, and limit orders are the defence. Do not assume the depth of an index weekly carries over to a currency weekly.

The third is segment activation. Weekly currency options sit inside the same currency derivatives segment as USDINR futures, so a client who has not activated the segment sees an “instrument not available” error when searching for the option. Activate the currency segment in Console first, the same step described for trading USDINR futures , and confirm the currency segment timings before placing an expiry-day order.

See also

• Zerodha
• Currency derivatives on Zerodha
• Zerodha currency segment timings
• How to trade USDINR futures on Zerodha
• Cross-currency derivatives on Zerodha
• National Stock Exchange
• Bombay Stock Exchange
• SEBI
• Reserve Bank of India
• RBI reference rate
• Financial Benchmarks India (FBIL)
• Foreign Exchange Management Act
• Kite by Zerodha
• Zerodha Console
• Option premium
• Theta decay
• ITM, ATM and OTM moneyness
• Open interest
• Unsquared options on expiry
• STT on options exercise
• SPAN margin on Zerodha
• Exposure margin on Zerodha
• Naked option selling margin on Zerodha
• Zerodha margin calculator
• Futures and options
• F&O taxation in India
• Zerodha F&O charges
• Securities transaction tax
• How to activate F&O on Zerodha
• F&O trading risks

External references

• SEBI: Circulars page (currency derivatives)
• NSE: Currency derivatives segment
• RBI: Reference rate archive
• FBIL: Financial Benchmarks India
• Zerodha support: Currency derivatives

References

1. NSE Currency Derivatives Segment, Contract specifications for USDINR options (weekly and monthly expiries).
2. SEBI master circular for stock exchanges and clearing corporations, currency derivatives position limits.
3. RBI A.P. (DIR Series) circulars on exchange-traded currency derivatives, resident position limits and the underlying-exposure requirement above the threshold.
4. Foreign Exchange Management Act 1999, Reserve Bank of India.
5. Finance Act 2004, securities transaction tax provisions; currency derivatives exemption.
6. Income Tax Act 1961, Section 43(5), non-speculative treatment of derivative income.