Launch of Options Trading in Zinc by MCX

What is the prediction of the impact that would be created by the launch of Options trading in Zinc by MCX?

MCX India has announced the launch of Options trading in Zinc after the approval of SEBI on 21 June 2018.

With the success of the launches of options trading enabled in Gold, Crude, Silver and Zinc, MCX is all set to the launch of Zinc on 21 June 2018. Mr.Ponmudi, Managing Director of Enrich Commodities and a well renowned Market Analyst has forecasted the positive impact that would echo towards this move. The previous predictions prior to the launch of options in other commodity scripts have come true to a greater extent.

What are the factors that would influence the Zinc Market?

USD-INR fluctuations

Recession, inflation and disaster

International markets prices that revolve

Economic factors such as: industrial growth, global financial

What are the benefits involved by the launch of Zinc trading?

The launch of Zinc trading as predicted by Mr.Ponmudi would bring in a lot of impact in the commodity trading industry.

The participation of hedging strategy among the market participants would turn out to be higher.

The number of market partakers trading in Zinc Options would increase drastically.

Considerate volume of trading is likely.

Equity segment traders would also be attracted to trade in Options Zinc trading.

High volatility can be expected and the liquidity will also increase.

This would be a hale and hearty move for the trading industry.

For trading in Zinc futures, full span margin is necessary, whereas for trading in Zinc options, the premium amount is sufficient.

Lowest investment shall bring in highest returns.

Formula for success would be: Limited risk = Unlimited profit

Brokerage will be comparatively lower in trading Zinc options when compared to trading in Zinc futures.

Lower CTT charges is applicable

A good profit can be expected when writing off is done in options trading as many approaches are involved.

Retail participation is likely to increase.

Contract Specifications of Zinc Options with Zinc (5MT) Futures as underlying:

Trading Period - Mondays through Friday

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

Descriptions: Options on Zinc 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 Zinc futures contract

Option Type – European Call and Put Options

Lot size – 5 MT

Underlying Quotation/ Base Value: Rs. Per Kg

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

Strikes: 7 In-the-money, 7 out-of-the-money and 1 Near-the-money. (15 CE and 15 PE)

Strike Price Interval -Rs. 2.50

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) - Re. 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 pass 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 he 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 CLIENT LEVEL: 14,000 MT or 5% of the market wide open position, whichever is higher for all Zinc options contracts combined together.

For a member collectively for all clients : 1,40,000 MT or 20% for all market wide open position, whichever is higher for all Zinc options contracts combined together.

The excess positions will have to be reduced to permissible position limits of the futures contracts within two working days. The settlement of the Premium / The final Settlement: T + 1 day

Mode of Settlement:

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

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

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

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

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

Exercise Mechanism of Expiry:

All the options contracts were belongs to CTM(Close to the money), The options series will be exercised only on explicit instructions for exercise by the long position holders of such contracts.

ITM - (All In the money) option contracts, except those belonging to CTM option series will be exercised automatically, otherwise contrary instruction had 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.

Options series having strike price closest to (DSP) Daily Settlement Price of Futures shall be termed as At the Money (ATM) options series. ATM option series accompanied options series each having strike prices instantly above and below ATM will be referred as (CTM) Close to the money option series.

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

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


Option Contract Launch Months Option Contract Expiry Months Corresponding Future Contract Expiry Months
Feb-18 May-18 May-18
Mar-18 Jun-18 Jun-18
Apr-18 Jul-18 Jul-18
May-18 Aug-18 Aug-18
Jun-18 Sep-18 Sep-18
Jul-18 Oct-18 Oct-18
Aug-18 Nov-18 Nov-18
Sep-18 Dec-18 Dec-18

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


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