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Gold mini options

26 Sep 2022 0 COMMENT

Options in the commodity derivatives market in India are another trading instruments for commodity traders. Against the Futures trading, Options trading is much easier and cost advantageous for retail traders. The first Options contract was launched in Gold and the exchange took a series of measures to make this product more lucrative for the participants. The response of the market participants was bleak at the beginning, but the scenario changed over the period as the market participants started understanding the advantages of Options trading. After the success of Gold Options, other Commodity Options were introduced and a recent entry to the kitty is Options on Gold Mini contracts.

Gold is one of the most widely traded commodities on commodity exchanges around the world. Because of its ability to store value, it is regarded as an inflation hedge as well as a safe-haven asset. During times of economic turmoil, when other asset classes such as equities, bonds, and currencies are underperforming, investors turn to gold to maximise their returns. Gold has a historically and statistically proven inverse relationship with stocks, bonds, and currencies. Gold is primarily supplied by two sources. The first is mining, and the second is recycled gold.

Besides jewellery, gold is being used as an investment, by central banks, and in technological applications such as medicine and dentistry.

The Multi Commodity Exchange of India is offering futures trading in four variants of gold contract and those are Gold 1 Kg, Gold Mini of 100 Grams, Gold Guinea of 8 Grams and Gold Petals of 1 gram. The options on gold 1 Kg futures contract was launched on 17th October 2017 and on Gold Mini was launched on 25th April 2022.

Gold options trading in India

Amongst the derivative products, Options are the best for retail customers as this product gives them an advantage over Futures contracts. Options provide the right but not the obligation to complete the transaction upon contract expiration by simply paying a premium to the counterparty. Futures contracts, on the other hand, are slightly larger and attract a higher margin when compared to Options. The development of various strategies in all types of market movement, such as bullish, bearish, and neutral, is an important aspect of Options contracts to comprehend.

Table: Options contract specification

Parameters

Crude Oil

UNDERLYING

MCX Gold Mini Futures

Expiry Day

(Last Trading Day)

3 business days before expiry of the underlying futures contract

Underlying Quotation / Base Value

Rs. / 10 Grams

Strikes

25 ITM - 1 NTM - 25 OTM

Strike Price Intervals

Rs. 100

Tick Size

(Minimum Price Movement)

Rs. 0.50

Settlement

                                             

On the expiry of the options contract, the open position shall devolve into the underlying futures position as follows: -

  • long call position shall devolve into a long position in the underlying futures contract
  • long put position shall devolve into a short position in the underlying futures contract
  • short call position shall devolve into a short position in the underlying futures contract
  • short put position shall devolve into a long position in the underlying futures contract

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

Source; Multi Commodity Exchange of India

Summary

Gold is one of the most traded commodities in India and the only commodity with multiple variants that cater to different types of customers, including jewellers and consumers. Gold is considered to be the most auspicious during festival and marriage season, as well as a source of prestige for many Indians. Despite these factors, the Indian gold market follows the US market for pricing, so economic and political developments in the US, as well as asset class movement, will have an impact on gold prices.

There are various ways to invest in gold namely physical gold, Futures and Options, gold ETFs and sovereign gold bonds. All these types of investment cater to different set of target market. When it comes to derivatives trading, Options of Gold and Gold Mini are most attractive to retail traders.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is a Member of National Stock Exchange of India Ltd (Member Code :07730), BSE Ltd (Member Code :103) and Member of Multi Commodity Exchange of India Ltd. (Member Code: 56250) and having SEBI registration no. INZ000183631. Name of the Compliance officer (broking): Ms. Mamta Shetty, Contact number: 022-40701022, E-mail address: complianceofficer@icicisecurities.com. Investments in securities markets are subject to market risks, read all the related documents carefully before investing. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The securities quoted are exemplary and are not recommendatory. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.