National Commodity and Derivatives Exchange has started options familiarisation initiative among Farmer Producer Organisations to buy put options in RM Seed and Chana. Initially, FPOs can buy put options RM seed and Chana, which are being sown by farmers in the ongoing rabi season. NCDEX would spend about ₹1 crore in covering the cost for buying options contract up to 5,000 tonnes of both the commodities.

Compulsory delivery

SEBI has foregone its regulator fee from the exchange for this initiative to support FPOs/farmers’ participation in derivatives market. The contract of options will be settled only through compulsory delivery on the day of the expiry. The quality specifications, delivery centres, final settlement price methodology, trading hours etc. in the option contracts will be similar to the futures contracts of the commodity.

Vijay Kumar, MD & CEO, said through the options contract, the exchange has offered farmers a tool to secure market price for their crop at the time of sowing itself and at the same time their right to gain when prices rise said.

As the premium is known in advance, FPOs can factor it in their cost of cultivation. This will certainly help FPOs/farmers in calculating their return and taking an informed decision while selecting new crops for sowing.

NCDEX has long been associated with scores of FPOs and the list is ever growing. Some of them have already tasted the comfort and benefits of Options trading.

These tool will be helpful for banks and other financial institutions, who extend commodity finance to farmers and have a risk if prices go down, this tool can be clubbed as a price protection measure to give much needed protection to both lender and borrower said Mr Kumar.

NCDEX had launched options contracts on Wheat, RM Seed and Maize – Feed (Industrial Grade) on July 27.