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Mcx commodity options trading

Multi Commodity Exchange recently launched Gold option segment which was not much attractive due to liquidity problem. It was less bought or sold in the market without disturbing the Gold price. Another noteworthy thing here is, the traders felt that the occurrence of price spread variation is more in the trading framework for these options. However, hedging (or) positional trader could utilize option trading.


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Contract Specification for Gold options with Gold (1 Kg) Futures as underlying

Trading Period -Mondays through Friday

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

Option Type – Call and Put

Lot size -100 Points

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


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Exercise style -Options are likely to be European in nature

Strike Price Interval -Rs. 100

Tick Size (Minimum Price Movement) -0.50 paisa

Trading Period -Mondays through Friday

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 – 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 basis. The Margin Period of Risk (MPOR) shall be at least two days. Parameters would be reviewed and changed, if required

Last- trading day (for Gold) – 3 days prior to the last tender day

Strikes – Considering one ‘At the money strike’ (ATM), there would be 15 strikes above and 15 strikes below ATM, taking the total to 31 strikes

Equity option traders are used to the following ‘Option Moneyness’ convention

1.At the Money (ATM) Options = This is when the spot is in and around the strike. So, in a given series, only 1 strike is considered ATM

2.In the Money (ITM) = All call option strike below the ATM and all put option strikes above the ATM are considered ITM options

3.Out of the Money (OTM) = All call option strike above the ATM and all put option strikes below the ATM are considered Out of the Money (OTM) options

However, the commodities options will introduce us to a new terminology – ‘Close to Money’ (CTM) and this is how it will work

Settlement of premium/Final Settlement - T+1 day

For Example: Option settlement,assume that commodities daily settlement price is 100. Assume this commodity has a strike interval at every 10 points.

1.At the Money (ATM)


80
90
100
110
120

2.Out of the Money (OTM)

All Call option above 100 are considered OTM and therefore worthless

All Put options below 100 are considered OTM and therefore worthless


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3.In the money (ITM)

All Call options below 100 (including 80 and 90, which are CTM) are ITM,

All Put options above 100 (including 110 and 120, which are CTM) are ITM.


Options Contract Launch Months Options Contract Expiry Months Corresponding Futures Contract Expiry Months
October-17 28th November 2017 5th December 2017
October-17 29th January 2018 5th February 2018
November-17 March-18 April-18

Contract Launch Calendar


November-17 May-18 June-18
November-17 July-18 August-18
November-17 September-18 October-18
December-17 November-18 December-18
February-18 January-19 February-19
April-18 March-19 April-19
June-18 May-19 June-19
August-18 July-19 August-19
October-18 September-19 October-19

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