Source: TOI
Context:
The Multi Commodity Exchange (MCX) has announced the launch of monthly options contracts on its bullion index ‘Bulldex’, marking a key development in India’s commodity derivatives market. The move follows one of the most intense buying phases in gold and silver that the country has witnessed in recent years.
Key Highlights:
- Launch Date: Monday, with contracts expiring in November, December, and January 2026 available initially.
- Underlying Index: Bulldex, MCX’s bullion index, is based on gold and silver futures prices.
- Market Context: The launch coincides with a period of price correction in both gold and silver after a sustained rally in the global and domestic markets.
- India’s Global Standing: India ranks as the world’s top country in terms of the number of options contracts traded, according to the Futures Industry Association (FIA).
- Existing Framework: MCX, launched Bulldex futures in August 2020, and is now expanding the product suite to include options contracts for greater hedging flexibility and participation.
What is Options Trading?
Options Trading is a type of derivatives trading where investors buy or sell contracts that give them the right, but not the obligation, to buy or sell an underlying asset (like a stock, index, or commodity) at a predetermined price (strike price) before or on a specific date (expiry date).
Key Concepts
1. Underlying Asset:
The financial instrument on which the option is based — for example, Nifty 50, Bank Nifty, or a specific stock like Reliance or Infosys.
2. Option Contract Types:
- Call Option (CE):
Gives the holder the right to buy the underlying asset at a fixed price before expiry.- Traders buy calls if they expect prices to rise.
- Put Option (PE):
Gives the holder the right to sell the underlying asset at a fixed price before expiry.- Traders buy puts if they expect prices to fall.
3. Strike Price:
The pre-decided price at which the buyer can buy (in a call) or sell (in a put) the asset.
4. Expiry Date:
The date when the option contract ends. In India, index options like Nifty and Bank Nifty have weekly and monthly expiries.
5. Premium:
The price paid by the buyer to the seller (writer) of the option to acquire the contract.
- It’s the cost of buying the “right” to trade the asset in the future.
