Options trading on MCX, the leading domestic commodity bourse, has witnessed a slow start.
Trading volumes that were more than ₹1,500 crore on the launch of Gold options on October 17 fell to less than ₹50 crore. The lack of trader interest in options is significant given the fact that MCX is the only bourse in India that trades gold options and has a monopoly in bullion trading.
After talking about it for more than two years, SEBI this year allowed commodity exchanges to launch options trading in commodity segment to bring them on par with the equity segment. The regulator has initially allowed each exchange to launch options contract in a single commodity and only MCX and NCDEX are the two that currently fit the criteria for auctions trading.
NCDEX is likely to launch options trading in Guar Gum contracts in a few weeks, a source said.
On October 17, when MCX started trading gold options it generated a volume of ₹1,560 crore, which was down to just around ₹28 crore on November 17. Market players are of the view that options trading on MCX will pick up once there is interest towards bullion trading. The share price of MCX, which was ₹1,135 on October 17 is down by around 15 per cent since the launch of options trading as it closed at ₹973 on Monday.
“As of now, investors and traders are engulfed with the equity market bull run and therefore gold options lack attention,” said a research head at Mumbai based brokerage.
Also, there is a view that the bullion market in India is yet to fully recover from the demonetisation shock, which contributes to lack of interest in gold options trading on MCX.
But data from MCX show that the open interest in gold options has increased from 1,030 lots to 1,765 lots and had touched a high of 1,955 contracts. Gold options have 1-kg gold futures contracts as underlying on MCX, which on an average daily basis has a turnover of around ₹2,300 crore in gold futures market.
MCX viewResponding to an email, MCX said there was no benchmark to state if current gold options volumes at their platform was a slow start as even mature markets like the US have a ratio of options to futures volume in the range of 15-20 per cent.
Also, India’s experience has been with trading cash settled futures and options contract in the equity market whereas gold options on MCX follow a delivery based settlement.
The MCX further said that Gold options average daily volume as a percentage of underlying 1 kg futures contracts was 6.62 per cent and open interest compared to futures was approximately 23 per cent.
The bourse said if one considered the average daily trading volume so far it was more than ₹200 crore.