Golden Future of Options Trading

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The Gold options make debut on MCX , launched by Honourable Finance Minister Arun Jaitley on the auspicious Gold buying festival of Dhanteras, where he mentioned that Gold options is a step towards formalising trade in the yellow metal and that it marks a very important evolution in trading of the yellow metal itself. And with those Golden words, the Much awaited Options contract in the commodity derivatives market is finally on and trading. The Interest and the participation has been encouraging. Policy-makers now recognise gold as an asset class, both for consumption and investment, and are working on policies to strengthen the spot and derivatives market.

The Markets have got a new instrument to trade in after a long wait of about 14 years. Since the Commodity markets came under the preview of Sebi and Finance ministry, there have been a lot of measure and steps being taken to ensure more products and participation in the sector. Sebi has allowed first institutional participation in the form of Category III Alternative Investment Funds to deal in commodities. Banking subsidiaries were allowed by RBI to provide brokering services in commodities. To improve market efficiency, the market regulator is also mulling the entry of mutual funds and portfolio management services in commodity derivatives.
The Indian Commodity exchange platform until now primarily have been used by retail and traders. There is option now for the corporate with small and large exposures, who have been traditionally hedging in overseas exchanges to now participate in Indian markets without the Forex exposure.
Gold and India 
India is the 2nd biggest importer of Gold in the world and imports 600-800 tons annually. Gold in India is used as an investment, religious and cultural occasions etc. The government has been trying to formalize the sector by making various structural changes. The government also has been trying to create transparency in this sector and widen the tax base.
Contract Specification of MCX Gold options
The Gold option is now traded with 1Kg Gold futures as underlying contract specification.
Understanding Gold Options
Options give buyers the right, but no obligation, to buy or sell an underlying asset at a specified price at the expiry and the risk is limited only to the premium paid to the seller of the option. Options also turn out to be cheaper than binding future agreements will help in the wider participation of investors. This important feature ensures entry of all stakeholders to participate in this financial instrument. There has been interest from refiners, jewelers, importers and exporters at various levels of value chain to be part of the hedging opportunity via this instrument.

 The exchange may seek SEBI approval for options on other eligible commodity futures contracts based on the performance of gold options on its platform.
You can hedge your risk effectively with options. If you are a jeweler and you hold inventory and the price of Gold starts to slide down. You could buy a Put option to sell 10 Kgs of Gold futures at 29500 on a specified future date. If the price of Gold goes down to Rs. 29200 / 10gms on Contract expiry then he can profit Rs 300 per 10 grams in derivatives market and could protect himself from the fall in his gold inventory valuation. But if it goes reverse and the Gold futures prices move to Rs. 29700 then your contract becomes out of money and will expire worthless and your loss will be limited to the premium paid by you, while you will gain from the increase in your gold stock valuation.
Wealth It Global provides you Trading tip calls about the Indian stock markets with intense analysis done by our Team of Analysts. We have been providing valuable Tips to our clients through various methods. We have helped lot of retail and HNI client through our tips services to fulfil their financial goals by making their money work for them a better way. We try to follow the trend and ride it using technical analysis rather than predicting customer's needs.

Comments

  1. CapitalStars0731 October 2017 at 00:40

    RCom will pay off up to Rs 17,000 crore of its debt, out of the proceeds of monetization of spectrum, towers and fiber and MCN.
    Equity Tips

    ReplyDelete

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