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MCX, the country’s largest commodity exchange, plans to launch options trading in gold on Dhanteras, next Tuesday.
To start with, the options trading will be available on a 1 kg gold futures contract, the exchange said in a statement. In August, commodity and capital market regulator Securities and Exchange Board of India (SEBI) allowed MCX to launch options trading in gold while the competing agriculture commodity-focused NCDEX was given permission to launch options trading in guarseed.
Traders can hedge their risks at a fraction of the cost in options compared to futures contracts. The launch of options is also expected to boost volumes in futures contracts.
As with equity derivatives, investors will have two types of options — call and put — to invest. If an investor sees gold prices rising, then he can buy into a call option and take a position in a put option if he expects a bearish trend.
In both cases, if the expectation of price movements comes true, the premiums on options will go up and investors will benefit.
Each option expiry shall have a minimum 31 strikes available — 15 each for In-the-Money (ITM) and Out-of-Money (OTM), and one At-the-Money (ATM).
Gold options will have a position limit of 10 tonnes for clients and 100 tonnes for members.
This price range covers wide price movements during contract time but most liquidity and trading usually happens at ITM or the price around which relevant futures are traded.
OTM means far from the trading range and ITM means within the trading range.
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