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MCX, the country’s largest commodity exchange, will launch options trading on Nickel (1500 kg) futures by the middle of this month with the growing investors and hedgers interest in metals.
The options contract will provide a more cost-effective tool for hedgers even as the underlying futures contract has gained good traction.
The average daily turnover in Nickel futures had touched Rs 26,764 crore this fiscal while it was Rs 26,354 crore in the September quarter.
Initially, three options contracts expiring in January, February and March will be available for trading with the underlying futures contracts.
The position limits for options contracts at the client level would be 2,000 tonnes or 5 per cent of the market-wide open position across all Nickel Options contracts together.
For members, the limit would be 20,000 tonnes or 20 per cent of the market-wide open position, whichever is higher – across all Nickel Options contracts together.
Options contracts on expiry will devolve into the corresponding futures position. Then, if the open position exceeds the permissible limit it has to be reduced within two trading days, said the exchange.
The MCX options contract will have a strike price interval of ₹20, while the tick size (minimum price movement) will be ₹0.05. The cost of hedging through options is much lower than that of futures.
Risk management for producers, exporters, processors and SMEs using Nickel is critical as any adverse movement in prices can impact the overall cost.
Given the economic uncertainty, modern techniques and strategies, including market-based risk management financial instruments can improve efficiencies and consolidate competitiveness through price risk management, said an analyst.
About 65 per cent of Nickel, a naturally occurring, lustrous and silvery-white metal, is used to manufacture stainless steel while another 20 per cent goes into the manufacturing of steel, and non-ferrous alloys, often used for highly specialised application in aerospace and military applications.
It is also used for various applications in electronics products, batteries for portable equipment and hybrid cars. In many of these applications, there is no substitute for nickel without impairing performance or increasing cost.
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