NEW DELHI: Finance minister Arun Jaitley on Tuesday launched an option’s contract in gold on the Multi Commodity Exchange (MCX) on the auspicious occasion of Dhanteras.
Options are an instrument that give the buyer a right to buy or sell an underlined at a present price on a future date. They are of two types: calls (right to buy) and puts (right to sell). According to market experts, options are also a much better hedging instrument as compared to futures for hedgers.
Gold option contract, with Gold (1 Kg) futures as underlying, expiring on November 28, 2017 and January 29, 2018 are made available for trading from Tuesday.
Saurabh Chandra, Chairman, MCX said, “The launch denotes one of the most significant reform measures since modern commodity derivatives trading started 14 years ago. There has been a very conscious effort by the government and SEBI to develop and integrate commodity markets in a phased manner. We are encouraged by the support and the approach, marked with a great degree of pragmatism. The introduction of options gives a strong impetus towards systematic development and transformation of commodity derivatives market in India, ushering in a new era in price risk management in response to stakeholder expectations.”
Mrugank Paranjape, MD & CEO, MCX said, “The long wait for Commodity options has finally come to an end. I commend the policymakers for having been proactive in bringing new products as well as new participants, facilitating further growth and development of India’s commodity derivatives market. As a low risk and powerful tool, the product further extends the benefits of effective price risk management to the stakeholders at large. Options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the market’s price discovery process. It gives market participants great flexibility to manage risk and achieve their trading objectives.”
The industry has waited for this new instrument since year 2003 when then NDA government opened up the Indian commodities market.
After the successful launch of gold options, Nirmal Bang Commodities said, “We hope more commodities option launch to be in line. Like in Brazil: Shortly after the inception of commodity options in US in 1982, BM&FBOVESPA launched options trading in gold in 1986. This was followed by launch of options in coffee and live cattle in early nineties.”