Traders are selling options and switching to more volatile pairs like the euro or pound as the swings in the rupee versus the dollar have ebbed to nearly a two-decade low, limiting the scope for making profits. 

“There has been an increase in option selling on exchanges,” said Nitesh Sharma, chief executive officer at RouteForex Solutions Pvt. “That’s a good trade seeing the current situation,” referring to the strategy that pays off when the rupee trades relatively flat without appreciating or depreciating. 

The rupee has been trading in a narrow range versus the dollar, becoming the world’s least-volatile unpegged currency, as measured by one-year implied volatility, data compiled by Bloomberg show. In comparison, the three-month implied volatility of the rupee against the euro and pound is more than double of the dollar, according to Bloomberg calculations. 

“If you look at pound and euro crosses, there is some traction. They are more volatile and traders who want to create some alpha are going over there,” said Dilip Parmar, currency analyst at HDFC Securities.

Repeated interventions from India’s central bank to contain volatility are keeping the rupee from breaching a record low of 83.2912 hit last year. It settled at 83.2887 per dollar Wednesday.

READ: Options Traders See RBI Grip on Rupee Lasting Rest of 2023

In markets where volatility is artificially suppressed, a breakout is inevitable, making the alternate trade strategies a risky bet, RouteForex’s Sharma said. 

“It’s actually better to stay out of the market. But if you have to do something, you can sell out-of-the money options in the 82.50-84 range,” he said, referring to puts and calls whose strike price is either lower or higher than the market price of the underlying security.