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Copper Options Contract Specifications

Launch of Options in Copper by MCX

SEBI the capital and the commodity market regulator has granted the permission to MCX for launching options trading in Copper (1 MT ).

Contract Specifications of Copper Options with Copper (1MT) Futures as underlying:

Trading Period: Monday through Friday

Trading Session: Monday to Friday - 10.00 a.m. to 11.30 / 11.55 p.m

Descriptions: Options on Copper Futures

Contract Start day:1st day of contract launch month. If 1st day is a holiday then the following business day.

Expiry date: Two business days prior to the expiry day of the underlying futures contract.

Trading Unit: One Copper futures contract


zinc

Option Type – European Call and Put Options

Lot size – 1 MT

Underlying Quotation/ Base Value: Rs. Per Kg

Order Types – All order types would be allowed (IOC, SL, SLM, GTC, Regular, Limit)

Strike Price Interval -Rs. 5

Base price: Base price shall be theoretical price on Black 76 option pricing model on the first day of the contract. On all other days, it shall be previous day’s daily settlement price of the contract.

Tick Size (Minimum Price Movement) - Rs. 0.01

Daily Price Limit:

The upper and the lower price band shall be determined based on statistical method using Black 76 option pricing model and relaxed considering the movement in the underlying futures contract.

Margins

The Initial Margin shall be calculated using SPAN (Standard Portfolio Analysis of Risk) which is a portfolio based margining system. To begin with, the various risk parameters shall be as under:

A. Price Scan Range – 3.5 Standard Deviation (3.5 sigma)

B. Volatility Scan Range – 5 %

C. Short Option Minimum Margin – Minimum of 2.5% subject to Margin Period of Risk (MPOR) (i.e 2.5% *√2 currently)

D. Extreme Loss Margin – 1% (to be levied only on short option positions)

E. Premium: premium of buyer shall be blocked upfront on real time basis. The Margin Period of Risk (MPOR) shall be at least two days. Parameters would be reviewed and changed, if required.

Real time computation:

The margins shall be recomputed using SPAN at Begin of Day, 10.30a.m, 12.30p.m, 1.30.p.m, 5.0p.m, 7.00p.m, 8.30p.m 10.30p.m & end of the day.

Risks pertaining to option that devolve into futures on expiry:

A. In the initial phase, a sensitivity report shall be provided to members of the impending increase in margins at least 2 days in advance. The mechanism shall be reviewed and if deemed necessary, pre-expiry option margins shall be levied on the buy / sell both positions during last few days before the expiry of options contract.

B. The penalty for short collection / non collection due to increase in initial margins resulting from development of options into futures shall not be levied for the first day.

Maximum Allowable Open Position: Position limits for options would be separate from the position limits applicable on futures contract.

For clients 14,000 MT or 5% of the market wide open position, whichever is higher for all copper options contracts combined together.

For a member level: 1,40,000 MT or 20% of the market wide open position, whichever is higher for all copper options contracts combined together.

Excess positions shall have to be reduced to the permissible position limits of futures contracts within 2 working days.

Settlement of Premium / Final Settlement: T + 1 day

Mode of Settlement:

A. Long call position shall devolve into long position in the underlying futures contract.

B. Long put position shall devolve into short position in the underlying futures contract.

C. Short call position shall devolve into short position in the underlying futures contract.

D. Short put position shall devolve into long position in the underlying futures contract.

All such devolved futures positions shall be opened at the strike price of the exercised options.

Exercise Mechanism of Expiry:

All option contracts belonging to Close to the money (CTM) option series shall be exercised only on explicit instructions for exercise by the long position holders of such contracts.

All In the money (ITM) option contracts, except those belonging to CTM option series shall be exercised automatically, unless contrary instruction has been given by long position holders of such contracts for not doing so.

The ITM option contract holders and the CTM option series holders who have exercised their options by giving explicit instructions, shall receive the difference between the Settlement price and Strike price in Cash as per the settlement schedule.

All Out of the money (OTM) option contracts, except those belonging to CTM option series, shall expire worthless.

In the event the OTM position holders, which are in CTM option series, exercise their option positions, shall be required to pay and settle the difference between strike price and settlement price as per the settlement schedule.

Option series having strike price closest to the Daily Settlement Price ( DSP) of Futures shall be termed as At the Money ( ATM) options series. The ATM option series along with options series each having strike prices immediately above and below ATM shall be referred as Close to the money (CTM) option series.

In case the DSP is exactly midway between two strike prices, then immediate two option series having strike prices just above DSP and immediate two options series having strike prices just below DSP shall be referred as Close to the money (CTM).

Due date Rate (Final Settlement Place): Daily settlement price of underlying futures contract on the expiry day of options contract.

Contract Launch Calendar for Copper Options contracts expiring during the year - 2018

Option Contract Launch Months Option Contract Expiry Months Corresponding Future Contract Expiry Months
On approval from SEBI Jun-18 Jun-18
March 15th June 2018 Jun-18
Mar-18 Aug-18 Aug-18

Contract Launch Calendar for Copper Options contracts expiring during the year - 2019

Option Contract Launch Months Option Contract Expiry Months Corresponding Future Contract Expiry Months
July February February
September April April
December June June
March August August
May November November
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