Sebi has allowed Derivative Exchanges to allow Options on Commodity Futures as per a circular on their website (13 June 2017). See link Sebi circular
In India there are four exchanges were commodity derivatives are traded.
- MCX (Multi-Commodity Exchange of India)
- NCDEX (National Commodities and Derivatives of Exchange)
- NMCE (Nation-wide Multi-Commodity Exchange)
- ICEX (India Commodity Exchange)
Most contracts are futures (or forwards but since on exchange are futures 🙂 ).
Sebi now allows Options on the futures contracts. This allows for hedging. Also speculation.
Basic criteria is that the futures should have been in the top 5 in trading value over the past 12 months. Basically only liquid futures contracts are eligible.
There is also average daily turnover criteria for the futures over the past 12 months (agricultural Rs 200 crore, other 1000 crore)
European style exercise
Settlement will be to take the underlying long or short position.
Long call will result in a long position in the future; Long put will result in short position in the future
Short call will result in a short position in the future; Short put will result in the a long position in the future
Position limits for options are separate from futures limits. Margining will be separate.
Due to exercise, the position limits of futures maybe breached. Two working days are allowed to bring these under the limit threshold levels