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The National Commodity Derivatives Exchange has suspended current options on futures in guar gum, soyabean, refined soya oil and chana with the launch of ‘Option on Goods’.
The exchange will start trading options on wheat, maize and rapeseed-mustard seed based on spot prices from Monday.
Unlike the current options contract which devolves on futures trading on expiry, the new ‘options on goods’ would be settled through physical delivery.
NCDEX was the first exchange to launch options in agricultural goods. Two options contracts expiring in October and November in Rapeseed – Mustard Seed, Wheat and Maize would be available for trading from Monday.
Farmers can hedge their price risk by buying a ‘put option’ even while they start sowing. Depending on the volatility of the commodity, they have to pay a premium which varies between 3-4 per cent of their price expectation.
On expiry of options contract, if the commodity price in the open mandi is higher than the price hedged by the farmer, then he can deliver it at the mandi and forgo the premium paid for the options position. The other option is to give the commodity delivery on the exchange and book profit.
The contract specifications in all the three options contracts launched will be similar to that of futures and the exchange will fix margin on the options writer.
Vijay Kumar, Managing Director, NCDEX, said the new options contract launched is best suited for farmer producers organisations and corporates to hedge their price risk.
The exchange has sought SEBI’s permission to launch options on spot in guar gum, soyabean, refined soya oil and chana.
In fact, he said banks can protect their farm loans by insisting on farmers to hedge their price risk by buying ‘put options’ on the exchange platform.
Earlier, SEBI had mandated that option on any commodity can be launched only if it records a minimum monthly average turnover of ₹200 crore in futures market. However, there is no such trading limit for exchanges to launch options on goods.
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