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MCX launches India’s first commodity options in Gold

Largest commodity bourse Multi-Commodity Exchange of India Ltd (MCX) launched India’s first commodity options in gold. It was launched by Union Finance Minister Arun Jaitley.

The gold futures contract will have bi-monthly duration. The option will also have the existing gold kilo futures contract as its underlier.

Options

Options are an instrument that gives buyer right to buy or sell an underlined at present price on a future date. They are of two types: puts (right to sell) and calls (right to buy). According to market experts, options are also a much better hedging instrument as compared to futures for hedgers.

Key Facts

MCX’s Gold Option contract is European-styled Gold options with Gold (1 Kg) futures as underlying asset. These options are hedge-friendly and physically settled. It means that on exercise at expiration options position develops into corresponding underlying MCX 1 KG Gold futures position at strike price of exercised options.

The options product is unique and first of its kind which gives buyers right to buy or sell underlying asset, but no obligation, at a specified price at expiry. Thus, for buyers, risk is limited only to premium paid to option seller (i.e. Option writer).

Comment

The launch of commodity options in gold denotes one of most significant reform measures since modern commodity derivatives trading started in 2003. It will give stakeholders new set of financial instruments to hedge their price risks. Moreover, introduction of options gives strong impetus towards systematic development and transformation of commodity derivatives market in India, ushering in new era in price risk management in response to stakeholder expectations

Multi Commodity Exchange Ltd (MCX)

MCX is country’s largest metals and energy commodity bourse. It is country’s first listed commodity futures exchange that facilitates online trading, and clearing and settlement of commodity futures transactions, thereby providing a platform for risk management.

It began functioning in November 2003 and operates within regulatory framework of the Forward Contracts Regulation Act, 1952 (FCRA, 1952). It offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading.

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IIP rises to 9-month high of 4.3% in August 2017

According to data released by Central Statistics Office (CSO), factory output measured in terms of Index of Industrial Production (IIP) has grown nine-month high to 4.3% in August 2017. This was mainly due to a robust performance of the mining and power sectors.

Key Facts

The manufacturing sector output grew 3.1% in August 2017, mining sector output surged 9.4% and electricity generation increased 8.3%. Production of capital good rose 5.4% in August 2017. Consumer durables output increased 1.6% and consumer non-durables output rose 6.9% in August 2017.

Index of Industrial Production (IIP)

The IIP is composite indicator that measures short-term changes in volume of production of basket of industrial products during given period with respect to chosen base period. It is compiled and published monthly by Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation.

The CSO had revised base year of IIP from 2004-05 to 2011-12 in May 2017 to capture structural changes in economy and improve quality and representativeness of indices. The revised IIP (2011-12) reflects changes in industrial sector and also aligns it with base year of other macroeconomic indicators like Wholesale Price Index (WPI) and Gross Domestic Product (GDP).

The IIP covers 407 item groups. Sector wise these items falls into 3 categories viz. Manufacturing (405 items), Mining (1 items) & Electricity (1 item). The weights of three sectors are 77.63%, 14.37%, 7.9% respectively. The revised eight core Industries have combined weightage of 40.27% in IIP.

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