FAQs Commodity Option Trading

Transcription

1 FAQs Commodity Option Trading 1. Will Options trading on Commodity Future launch? Ans. Yes, Options Trading on Commodity Future in MCX is launched w.e.f. 17 th October, 2017 and in NCDEX w.e.f. 14 th January In MCX the Trade in Options is started with in Gold Option Contract with Gold (1 KG) consecutive future as Underlying and in NCDEX it is started in GUARSEED with GURASEED10 future as Underlying. Option type is European Call and Put. 2. What will the cycle of Options Contract? Ans. In MCX the New Options Contract will be started / opened on 16 th corresponding future contract launch month. day of Example: If Gold Feb 2018 future is started / opened in November 2017, then the corresponding Options Contract will be started / opened on 16 th Day of November 2017 and in case 16 th Day is a holiday, then the following business day shall be considered for the same. However NCDEX shall start/launch the Contract on the trading day following the day on which underlying Future contract is launched. Example: If Guarseed10 Feb 2018 future contract is started/launched on November 21 st, 2017 then the corresponding Options Contracts will be started/launched on 22 nd November How many strikes of Options Contract shall open? Ans. MCX shall open minimum 31 strikes where 15 In-The-Money (ITM), 15 Out of-the- Money (OTM) and 1 At-The-Money (ATM) trade in each Options Contract. Whereas NCDEX shall open Minimum 11 strikes with 5 ITM, 5 OTM and 1 ATM. The Exchanges may introduce additional strikes, if required. 4. What is the strike interval in option contracts?

2 Ans. MCX Gold option contracts are available in strike interval of INR Whereas, NCDEX Guarseed option s strike interval is INR When will the Options Contract expire (Last Trading Day)? Ans. In MCX Options Contract will be entitled to expire (Last Trading Day) on three business days prior to the first business day of the Tender Period of the Underlying future contract. Example: December, 2017 future contract s tender period will be started from 1 st December, 2017 hence the last trading day for the Corresponding options would be 28 th November In NCDEX it will be expired on the Last Wednesday of the month that precedes the month of expiry of underlying futures contract. If last Wednesday to be happen on a holiday, then the Expiry date shall be next trading day. 6. How will margin calculate on Options contract in Commodity Future? Ans. Like Commodity Future Margining System Margin shall be computed using Standard Portfolio Analysis of Risk (SPAN*) software which is a portfolio based margining system. Calendar Spread Charge The Calendar Spread charge shall be 25% on both the legs of the position. Client Margin Reporting Like Commodity Future the client Margin Collection Reporting will be done in the same manner the way Net Option Value Net Option Value is computed as the difference between the long option positions and the short option positions, valued at the last available closing price and shall be updated intraday at the current market value of the relevant option contracts at the time of generation of risk parameters. Thus, mark to market gains and losses shall not be settled in cash for options positions. 7. How will Mark to Market in Options Contract settle? Ans. The Options position shall be marked to market by deducting / adding the current market value of options positions (positive for long options and negative for short options).

3 Mark to Market gains and losses is not settled in Cash on daily basis for Options Position. 8. How will open positions settle on expiry Day (Last Business Day)? Ans. On Expiry Trading Day, all the open position which is not closed by the customer shall devolve into underlying futures position both in MCX as well as in NCDEX as follows:- Long Call position shall devolve into Long position in the Underlying Futures Contract Long Put position shall devolve into Short position in the Underlying Futures Contract Short Call position shall devolve into Short position in the Underlying Futures Contract Short Put position shall devolve into Long position in the Underlying Futures Contract All such devolved futures positions shall be opened at the strike price of the exercised options. 9. What is Devolvement Mechanism? Ans. On expiry day, following mechanism shall be adopted for devolvement of the options contracts: - a. Option series having strike price closest to the Daily Settlement Price (DSP) of Futures shall be termed as At the Money (ATM) option series. This ATM option series and two option series having strike prices immediately above this ATM strike and two option series having strike prices immediately below this ATM strike shall be referred as Close to the money (CTM) option series. Hence 5 Strikes shall be considered for CTM. In case the DSP is exactly midway between two strike prices, then immediate two option series having strike prices just above DSP and immediate two option series having strike prices just below DSP shall be referred as Close to the money (CTM) option series. Hence 4 Strikes shall be considered for CTM. b. All options contract belonging to CTM option series shall be devolved only on explicit instruction for devolvement by the long position holders of such contracts failing which they will expire worthless. c. All In the money (ITM) option contracts, except those belonging to CTM option series, shall be devolved automatically, unless contrary instruction has been given by long position holders of such contracts for not doing so.

4 d. All Out of the money (OTM) option contracts, except those belonging to CTM option series and devolved by the long position holders, shall expire worthless & shall not be devolved in corresponding future contract. e. All devolved contracts within an option series shall be assigned to short positions in that series on a random basis. f. On the option contract devolving in the underlying futures contract, the trading and settlement regulations of the underlying futures contract shall apply. Strike Devolvement Procedure Effect In The Money (Other than Close To Money) Close To Money (CTM) In The Money(ITM) / Close To Money (CTM) Out of The Money (OTM) Out of The Money ( Other than Close To Money) Position shall devolve automatically ITM Long Position Holder can give contrary Instruction An explicit instruction shall be placed for exercise of Options. No position shall devolve automatically. Positions shall not devolve into Futures Difference between settlement price and strike price shall be cash settled Positions would get devolved into Futures contract Expire worthless i.e. There will be no cash settlement No positions will get devolved in to Futures contract Difference between settlement price and strike price shall be cash settled. In case of CTM- OTM position member have to pay the Difference between settlement price and strike price to the Exchange Positions would get devolved into Futures contract Expire worthless i.e. There will be no cash settlement No positions will get devolved in to Futures contract All position will expire worthless i.e. There will be no cash settlement 10. How will Devolvement (options conversion to Future) Margin levy on the position? Ans. On MCX option positions a. Devolvement margin shall be levied beginning from at least one day (number of days may be increased) prior to options expiry date. b. Devolvement Margin may start from 25% to maximum 50% of Total Devolvement Margin

5 On NCDEX Option Position a. Devolvement margin/pre-expiry Margin shall be levied beginning from 3 days prior to expiry. b. An additional 1/3*Future margin * Underlying Future Price * Weightage (if any) for each of the three days before expiry of the Options contract. Pre expiry margin on Options shall be levied on Options buyers (holders) and Options sellers (writers). Devolvement Margin shall be in addition to all other applicable margins. Exchange shall not consider devolvement margins for the purpose of client margin reporting. 11. What change will applicable on Member Wise Position Limit after Devolvement of Options Position? Ans. Member Wise Position limit of options would be separate from position limits of futures contracts. Upon expiry of the options contract, after devolvement of options position into corresponding futures positions, open positions may exceed their permissible position limits applicable for future contracts. Such excess positions shall have to be reduced to the permissible position limits of futures contracts within two trading days. The excess position limits would be permitted for only those clients, who had exceeded position limits at the time of devolvement, which is only upto next two trading days. 12. How can the dealer place order in Options contract on behalf of customer? Ans. Like Future Commodity dealer may place order in Options contract on behalf of customer. No further certificate is required for running the User /CTCL Id in Option Trading in Commodity Future. 13. Whether the dealers need to apply a separate CTCL ID for Option Trading? Ans. NO, Option trading facility will be automatically enable with the existing dealer IDs of the Branch. 14. How will Options Trading allow to existing customer? Ans. No fresh KYC of existing clients is required for trading in commodity options contracts however consent of client is to be taken for trading in OPTIONS on Commodity Derivative Exchanges. Customer may activate give consent through physically or soft. The URL to activate options in commodities is

6 15. What will be the allocated Margin to client for trading in options? Ans. Trading Platform will be set to client s available balance in commodity. Client can use this available balance in any position whether in futures or option segment of the market. Further an additional check shall be implemented on trading platforms to restrict the net premium value as 1 time of the available margin of the client. 16. How much Transaction charge will charge? Ans. MCX has waived off the Transaction Charges on Options trading till March 31, Whereas NCDEX has waived it off till further notification. 17. How much Securities Transaction Tax shall charge? Ans. Securities Transaction Tax (STT) would be computed as under: - Taxable Securities Rate Payable by Transaction (a)sale of an Option in 0.05 per cent Seller Seller # securities* (b) Sale of an Option in securities*, where option is exercised 0.125per cent Purchaser ## * Option in securities covers option having commodity futures as underlying. # Value of taxable securities transaction relating to an option in securities, shall be the option premium, in case of an option in securities. ## Value of taxable securities relating to an option in securities, shall be the notional value of the underlying commodity futures contract at settlement price, in case of sale of an option in securities, where the option is exercised. In case the options contract devolves into commodity futures position, Commodities Transaction Tax (CTT) shall be payable by the seller on sale of commodity futures, as applicable.