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NCDEX Forays In Options In Goods On Three Commodities, A First For Indian Agri Market

  • Agri commodity exchange NCDEX all set to launch Options in Goods contracts on Wheat, Rapeseed-Mustard Seed and Maize – Feed/Industrial grade from July 27, 2020
  • With Options in Goods, the options contracts shall go into compulsory delivery settlement after expiry.

Mumbai, NFAPost: National Commodity and Derivatives Exchange Limited (NCDEX), India’s leading agricultural commodity exchange has announced the launch of Options in Goods contracts on Rapeseed – Mustard Seed, Wheat and Maize –Feed/Industrial Grade.

Contracts expiring in the months of October 2020 and November 2020 would be available for trading from July 27, 2020 onwards in all three commodities.

Subsequent to the permission given by the regulator, the Securities and Exchange Board of India (SEBI), NCDEX has become the first Exchange in India to launch Options in Goods contracts in agri derivatives space.

Settlement mechanism

Options in Goods provide a settlement mechanism where contracts settle on spot price and all open positions converts into physical settlement at expiry.

Commenting on the launch, NCDEX MD &CEO Vijay Kumar said the introduction of Options in Goods will play a major role in bringing the farmer groups and physical traders on NCDEX platform.

“I have no doubt that launch of this category would open doors for those working with physical commodities to try NCDEX platform for hedging their price risk like never before. We think that these products are much more simplistic in nature and are best suited for FPOs/farmers who can protect themselves by buying put options and if required can deliver physical goods smoothly,” NCDEX MD &CEO Vijay Kumar.

Commodity derivatives

SEBI, in January 2020, had allowed the exchanges to launch ‘Options in Goods’ in their commodity derivatives segment. With Options in Goods, the contracts will be completed only through compulsory delivery on the day of the settlement.

It would specially be convenient and beneficial for farmers and farmer groups who want to buy options to lock their price to hedge against any adverse movement of prices.

For example, if a Farmer Producer Company buys a put option contract under Options in Goods, on expiry, it has to give delivery directly at the exchange platform if the contract expires in-the-money.

The option contracts would have same quality specifications, delivery centres, final settlement price methodology, trading hours and minimum tenor as the corresponding futures contracts.

Option contracts

NCDEX Head of Business & Products Kapil Dev said earlier NCDEX had the option contracts which used to convert into Futures after the expiration.

“But in these newly launched option contract, the contracts would be settled directly through delivery after the expiry. This is an easy tool which can be used for risk management and delivery both,” said NCDEX Head of Business & Products Kapil Dev.

NCDEX is a leading, professionally managed, agricultural commodity exchange in India which offers services across the entire post-harvest agricultural commodities value chain. As India’s leading online Exchange, NCDEX offers a wide range of benchmark products across agriculture commodities.

NCDEX brings buyers and sellers together through its electronic trading platform. Some of NCDEX’s key investors include National Stock Exchange of India Limited, Life Insurance Corporation of India, National Bank for Agriculture and Rural Development, Indian Farmers Fertiliser Co-operative Limited, Oman India Joint Investment Fund, Punjab National Bank, Canara Bank, Build India Capital Advisors LLP, and Investcorp Private Equity Fund I (formerly known as IDFC Private Equity Fund III). 

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