On the other hand, commodity options derive their value from the futures contract of a given commodity. Time Value of an option is the difference between its premium and its intrinsic value i.e. It can also be a way to limit the risk of owning the commodity directly. In this case, the trader A will make a profit of Rs.137.5 per 10gm. Angel Broking Limited (formerly known as Angel Broking Private Limited), Registered Office: G-1, Ackruti Trade Center, Road No. (Binomial option pricing methodology is mainly used to price American Option). At $1, the minimum investment amount is also really low! For example, with gold at INR 29000, an investor could sell a put with INR 28000 strike price for INR 200, then for 1 kg gold contract: Similarly, various multi legged strategies like the covered call and Married Put can be easily executed through the call and put options. If gold dips below the strike at expiry date, the put seller is assigned the stock, with the premium offsetting the purchase price. No. Other fungible goods are Crude oil, steel, iron ore, currencies, precious metals, alloy, and non-alloy metals. In this situation, you’re the holder of the option and the dealer is its underwriter. The following seven goods are suitable for trading in the Indian commodity market because of their ever-increasing demand in the domestic and international market. By this time, you already know that there are two forms of derivates which you can opt for while trading, i.e. Example: Gold trades at INR 29000 per 10 grams and a Call option at INR 29000 strike is available for INR 290 with expiry date in three months. If the commodity price stays at or rises above the strike price, the seller takes the whole premium. As an investor, you would need to pick assets for investment, based on your risk appetite. Therefore, he sold the call option. Trading in options can help you minimize the risk as compared to trading in futures. : INZ000161534-BSE Cash/F&O/CD (Member ID: 612), NSE Cash/F&O/CD (Member ID: 12798), MSEI Cash/F&O/CD (Member ID: 10500), MCX Commodity Derivatives (Member ID: 12685) and NCDEX Commodity Derivatives (Member ID: 220), CDSL Regn. Advantage: Loss is limited only up to the premium paid while profit is unlimited. Commodities are a good asset class to diversify your portfolio. : IN-DP-384-2018, PMS Regn. Risk is involved in all types of investment, and commodity trading isn’t different. In case of options, the trader only has to pay the premium, which is significantly lower than the margin required for trading in futures. Mr A insures his car of Rs 5,00,000 by paying a premium of Rs 10,000. We strongly believe that you owe it to yourself to overcome your fear of trading commodity options and open your mind to the possibilities. Please note that by submitting the above mentioned details, you are authorizing us to Call/SMS you even though you may be registered under DND. In the Indian Markets, the European style contracts are found. Rs 1000 waived). Open a Commodity Demat & Trading Account Now! We do not sell or rent your contact information to third parties. Get the Offer !!! The contract is for 1 kilogram, which means this call option costs INR 29000 (Premium): INR 290 X 100. While the long call can return multiples of the original investment, the maximum return for a short put is the premium, or INR 29000 in this case, which the seller receives upfront. We shall Call/SMS you for a period of 12 months.Brokerage will not exceed SEBI prescribed limits Disclaimer  Privacy Policy Any Grievances related the aforesaid brokerage scheme will not be entertained on exchange platform. Keep in mind that delivering a short futures contract simply means being long from the strike price. If the gold price rises above the strike at expiry date, the call seller must sell the gold at the strike price, with the premium as a bonus. Commodity options are currently available on two national exchanges, MCX and NCDEX. Motilal Oswal: Free (Trading & Demat Account) + Free Brokerage for 1st Month (i.e. Note: The commodity options can also get converted into futures contract if they are not squared off. The trader hedges losses and can continue holding the gold for potential appreciation after expiry date. However, it is important to realize that just because a commodity seems "cheap" doesn't mean that it can't go lower. The different commodities have different trading hours, with some being available for about 23 hours a day, 5 days a week, and others being available for only 4 and a half hours a day, 5 days a week.