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Introduction to commodity options
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This video introduces commodity options and how to trade them
The commodity derivatives market in India is a dynamic space.
Originally, traders only had commodity futures to trade in.
But on October 17, 2017, the first commodity options contract was introduced.
It was a gold options contract - with a gold futures contract as the underlying asset. A derivative of a derivative!
Over the years since, many other commodity options have been introduced in the Indian commodity market, such as copper options, silver options, crude oil options and zinc options contracts.
For commodity options in India, the underlying asset can either be a commodity or a commodity futures contract.
So, while in stock options, you receive the underlying stock when the option expires,
In commodity options, you receive the futures contract of the relevant commodity.
Aside from this, commodity options work quite like stock options.
You have both call options and put options in the commodity options segment.
Call options give you the right to buy the underlying.
Put options give you the right to sell the underlying.
And before we wrap up, are you wondering where you can trade in commodity options?
Well, for that, we have three exchanges: The Multi Commodity Exchange or MCX, the National Commodity and Derivatives Exchange or NCDEX and the Indian Commodity Exchange ICEX
That sums up the basics of commodity options.
And here’s a quick suggestion - Keep in mind that it is a good idea to first start off with a small investment till you get a good grasp of the options expiry and settlement process.