InvestorQ : What are commodity options and why such a delayed launch of commodity options in Indian markets?
Mahima Roy made post

What are commodity options and why such a delayed launch of commodity options in Indian markets?

Answer
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Anamika Sodhani answered.
1 year ago


In the last couple of years, we have seen the MCX announcing the launch of options on copper as well as gold and silver. SEBI had permitted commodity exchanges to offer options on commodity futures and the first contracts went live in October 2017. The gold commodity options were launched on the auspicious day of Dhanteras last year. Here is what you need to know about commodity options. That brings us to the next question; why such a delayed launch of commodity options in India?

Reasons for the delayed launch of commodity options in India

The launch of commodity options was announced in 2017; a full 14 years after the first commodity options were launched. Why was there such a delay in the launch of commodity options? Firstly, the options cannot be launched on the spot commodities but only on the commodity futures. In case of equities, trading in equity and F&O is regulated by SEBI. Hence SEBI could simultaneously launch Futures and Options on the spot price. However, in case of commodities, only the futures are regulated by SEBI (formerly by FMC), while the spot markets are regulated by the respective states. Since SEBI does not have control over the spot markets, the options are being launched as an option on the commodity futures. Like in case of any option, this contract will be a right to buy without an obligation to buy. The only difference is that the underlying asset for the option will be the Commodity future and not the commodity in spot.