Launch of options in goods a timely step, says NCDEX CEO

MUMBAI July 27 2020: Terming the launch of Options in Goods a ‘timely step’, National Commodity Derivatives Exchange (NCDEX) MD & CEO Vijay Kumar expressed confidence that bringing in the three Options contracts shall go hand in hand with the goals envisaged by the recently announced unprecedented Agri reforms.

“Farming in a risky profession and it is important that a farmer insures himself to ensure that he gets the right price for the crops. Options are one such way where a farmer can lock his price risks and ensure that he secures the right price for the crop. So, the Options in Goods being announced immediately after the three government ordinances, which in a way has liberated the farmer and buyers, is a timely step. As the planting of the Kharif crops has just happened, it is an appropriate time to use the Options in Goods tool to protect themselves, come the time of the harvest,” Kumar stressed.

“We are thankful to SEBI for the approval of these products and we are really excited that Options in Goods contracts on Wheat, Rapeseed-Mustard Seed and Maize – Feed/Industrial grade. I’m confident that it will prove to be an appropriate tool for farmers and FPOs to protect themselves against adverse price movements by buying put options and do transaction on the Exchange in a smooth manner. We also hope that the banks and other corporate institutions will soon join the bandwagon and help farmers to improve their income,” he added.

SEBI, in January 2020, had allowed the exchanges to launch ‘Options in Goods’ in their commodity derivatives segment. In view of this, NCDEX had announced that it will launch Options in Goods contracts on three commodities from July 27, 2020.

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 prices to hedge against any adverse movement of prices and also don’t need to miss out the profits if the prices move affirmatively, on the other hand. The option contracts would have same quality specifications, delivery centres, final settlement price methodology, trading hours and minimum tenor as the corresponding futures contracts.

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

Speaking on this development, NCDEX Head of Business & Products Kapil Dev said, “NCDEX has been launching dynamic products as per the need of the market regularly. We had Options on Futures two to three years back with a view that farmers can come and trade and lock their prices where they are protected against a price fall and get the benefits in case the prices were to move up. Then we launched India’s first agri derivatives index, AGRIDEX, which is a wider instrument that tracks the movement of the wider ecosystem in various ways and can be used as a directional indicator for the agriculture market. So, on the same lines, the Option in Goods will be yet another dynamic tool wherein the farmers can efficiently use it for effective risk management and delivery both.” 

“We believe commodity derivatives market have made significant progress since inception and with Options in Goods we are bringing in another important product which will not only be useful to farmers, but also to hedgers, millers etc. All of us here in the NCDEX are extremely excited on the launch of Options in Goods and believe it will be an attractive tool to protect against price risks,” NCDEX CFO Atul Roongta said.

NCDEX offers a wide range of benchmark products across agriculture commodities. NCDEX brings buyers and sellers together through its electronic trading platform.