NEW DELHI: Finance Minister Arun Jaitley on ‘Dhanteras’took a step closer to formalising gold trade, offering ‘options’ to trade the yellow metal on commodity bourse MCX.
Options are contracts that grant the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a certain date. The right to buy is called a call option and the right to sell is a put option.
This is the first product that the Securities and Exchange Board of India (Sebi) has allowed for options trading after 14 years of commodity exchanges were introduced in India.
Currently, MCX offers futures trade in gold and other commodities.“This marks a very important evolution in trading of yellow metal itself. It hedges all risks by giving them (traders) the option of futures,” Jaitley said at an event on Tuesday.
He added that this would be a successful product considering Indians are great buyers of gold. Jaitley reiterated that the government was in the process of working out the formalities to allow gold trade.
“I am sure the more it formalises, the better it is for consumers, jewellers and those trading in this,” said the finance minister. Gold options contracts are available for trading from Tuesday and investors can trade in 1 kg of gold.
MCX managing director and CEO Mrugank Paranjape termed the gold option an “extremely low-cost product”.The contracts will expire in November and January 2018, MCX officials said. The commodity trader as a promotional offer would not charge any transaction fee on gold options till December. By then, the exchange hopes the market will develop for this product.
MCX is the leading commodity bourse in the country with a market share of over 90 per cent. It offers futures trade in gold and other commodities like base metals, and energy.
“Options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the market’s price discovery process,” said Saurabh Chandra, chairman, MCX.
MCX mulls options trade in more commodities
MCX plans to approach the Securities and Exchange Board of India to allow ‘options’ trading in other commodities such as cotton, crude palm oil, silver and copper. The industry, too, has been demanding other products like options trade also for hedging