What is the impact of the launch of Options trading in Copper by MCX?


An outlook by Mr.Ponmudi on the impact of the launch of Options trading in Copper by MCX.


  • With the recent approval of SEBI, MCX India has launched the Options trading in Copper on 21 May 2018. As per the forecast of its launch by Mr.Ponmudi who is a market analyst and Managing Director of Enrich Commodities India Pvt.Ltd, the following is the outcome.
  • Decent volume of trading has taken place on the first day. This helped in volatility and liquidity in the market.
  • The number of market participants trading in Copper Options has seen to increase gradually.
  • It was advantageous for upside and downside trading.
  • Those trading in equity segment – NSE stock options and Index options are also likely to trade in Options copper trading.
  • International intervention to influence this market is less as more technical aspects would be involved. Hence manipulation is less when compared to other markets.
  • High returns can be expected with low returns as limited risk is involved in trading copper options.
  • The participation of hedging strategy among the market participants is expected to be good in the upcoming days as the risk factor is minimised.
  • Brokerage charges are comparatively lower in trading copper options. CTT charges are lower in options trading.
  • Retail participation can also be expected to fare well in the upcoming days.

Feedback on this Launch received at the end of the first day trading in Copper Options:


Mr.Ponmudi held a discussion with clients and other market participants in general and received the following feedback. Unlike trading in other scrips, trading in Copper options has a notion among the traders that the Bid price is low. The bid price is in decimals. Some have a negative perspective on this in particular. Such decimal trading has not taken place in Stock options or Index options in MCX. Usually such kind of trading takes place only in penny trading in stocks. Clients feel all this calculation / profit & loss is not helping them much.

MCX will review and change it from time to time. However on the closing note, Mr.Ponmudi added that, when compared to the launch of Crude and Gold options trading, copper will have an upper hand in the market among traders, investors and retailers. It is a healthy sign to the industry filled with positive vibes.

Important Specifications to be noted in the contract:


  • Expiry Day shall be two business days prior to the Expiry day of the underlying futures contract
  • Trading Period shall be Mondays through Fridays | Trading Session: Monday to Friday: 10.00 a.m. to 11.30 / 11.55 p.m.
  • Trading Unit shall be one MCX Copper futures contract | Underlying Quotation/ Base Value: `/Kg
  • Strikes shall be 7 In-the-money, 7 Out-of-the-money and 1 Near-the-money. (15 CE and 15 PE). The Exchange, at its discretion, may introduce additional strikes, if required.
  • Strike Price Intervals shall be` 5.00 | Tick Size (Minimum Price Movement): ` 0.01

Magin shall include:


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

B. Volatility Scan Range – 3.5 %

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 of buyer shall be blocked upfront on real time basisDue Date Rate shall be Daily settlement price of underlying futures contract on the expiry day of options contract. (Final Settlement Price)


   
 
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