Arun Jaitley launches gold options trading on MCX


The commodity options trading with gold was unveiled by Union Finance Minister Arun Jaitley.

On this occasion, Jaitley said that Dhanteras marks an important evolution in trade of yellow metal. Jaitley added that the government has been putting in consistent effort to formalize gold trade through policy formulation.

In June, India's markets regulator allowed hedge funds registered as category III Alternative Investment Funds (AIFs) to invest in commodity derivatives as clients, opening up the market to institutional investors for the first time.

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The "options give buyers the right to buy or sell the underlying asset but no obligation, at a specified price at the expiry".

"In the long run, it may encourage increased trading and risk management activity of gold exposures through the financial markets such as futures and options". This allows traders to hedge their risks at a small cost. This means that the risk is limited only to the premium paid to acquire the option. If an investor sees gold prices rising, then he can buy into a call option and take a position in a put option if he expects a bearish trend.

Terming it as a major reform, MCX Chairman Saurabh Chandra said: "Options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the market's price discovery process".

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Describing the gold option as "an extremely low-priced product", MCX managing director and CEO Mrugank Paranjape said, "As an introductory measure, we are not charging any transaction fee on this product till December".

Mr. Paranjape also said the exchange was likely to seek SEBI's nod for options trading in other commodities as well, including silver, copper, crude palm oil, zinc and cotton.

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