In January 2020, the Securities and Exchange Board of India (Sebi) had allowed exchanges to launch 'Options in Goods' in their commodity derivatives segment.
The National Commodity and Derivatives Exchange (NCDEX) will launch options in goods for three commodities — mustard seed, wheat and maize — on Monday. Contracts expiring in the months of October and November will be available for trading from July 27 onwards in all three commodities, NCDEX said in a webinar on Sunday.
NCDEX will become the first exchange in the country to launch options in agriculture goods.
In January 2020, the Securities and Exchange Board of India (Sebi) had allowed exchanges to launch ‘Options in Goods’ in their commodity derivatives segment.
With options in goods, contracts will be completed only through compulsory delivery on the day of the settlement.
“It would specially be convenient and beneficial for farmers and farmer groups who want to buy options to lock their price to hedge against any adverse movement of prices,” NCDEX MD and CEO Vijay Kumar told reporters.
“Unlike the current options contract that devolves on futures trading on expiry, the new ‘options on goods’ would be settled through physical delivery,” he added.
These products are much more simplistic in nature and are best suited for FPOs (farmer producer organisations) or farmers who can protect themselves by buying put options, and if required can deliver physical goods smoothly, he said.
Earlier, SEBI has mandated that options on any commodity can be launched only if it records a minimum monthly average turnover of Rs 200 crore in futures market.
However, there is no such trading limit for exchanges to launch options on goods.
Going forward, the exchange is planning to launch five commodities for trading in options in goods platform — chana, guar gum, guar seed, soyabean and soya oil, that were introduced for trading in options in futures platform, Kumar said.
“These five commodities were earlier introduced for trading in the options in futures platform and which was subsequently suspended from July 21. We are now planning to introduce those five commodities for trading in the options in goods platform going forward. For that, we will apply for regulatory approval,” he added.