Underlying: Goods as notified vide number S.O. 3068(E), dated the 27th September, 2016 under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956.
Eligibility Criteria for Underlying: Only those goods shall be eligible as underlying for these options, on which exchange either is already trading the futures contracts or is proposing to launch the futures contracts on or before the day of launching option in those goods. These Option contracts shall have same quality specifications, delivery centres, Final Settlement Price methodology etc. as in the case of corresponding futures contracts.
Settlement Method: On exercise, option contract shall be settled through delivery of goods.
Exercise Style: All exercise style are permitted.
Minimum Strikes: Each option expiry shall have minimum three strikes available viz., one each for In the Money (ITM), Out of the Money (OTM) and At the Money (ATM).
Exercise Mechanism: On expiry, following mechanism shall be adopted by Exchanges for exercise of the options contracts: Option series having strike price closest to the price of the underlying shall be termed as At the Money (ATM) option series. This ATM option series and three option series having strike prices immediately above this ATM strike and three option series having strike prices immediately below this ATM strike shall be referred as ‘Close to the money’ (CTM) option series.
In case the price of the underlying is exactly midway between two strike prices, then immediate three option series having strike prices just above the price of the underlying and immediate three option series having strike prices just below the price of the underlying shall be referred as ‘Close to the money’ (CTM) option series.
All option contracts belonging to ‘CTM’ option series shall be exercised only on ‘explicit instruction’ for exercise by the long position holders of such contracts.
All In the money (ITM) option contracts, except those belonging to ‘CTM’ option series, shall be exercised automatically, unless ‘contrary instruction’ has been given by long position holders of such contracts for not doing so.
All Out of the money (OTM) option contracts, except those belonging to ‘CTM’ option series, shall expire worthless.
All exercised contracts within an option series shall be assigned to short positions in that series in a fair and non-preferential manner.
Trading Hours: Trading hours shall be same as those of corresponding futures contract.
Expiry Day: Exchanges shall have flexibility to decide upon Expiry day of options contracts.
Minimum Tenor: Minimum tenor of such option contracts shall be same as those of corresponding futures contracts.
Position Limits: SEBI vide Circulars dated September 27, 2016 and July 25, 2017 prescribed norms for position limits for commodity futures. Position limits for options shall follow the same norms as provided in the said circulars for futures. The computation of position limits for ‘option in goods’ shall be clubbed with position limits of ‘options on commodity futures’ on the same underlying goods but shall remain separate from position limits of futures contracts on the same underlying. Numerical value for client level/member level limits shall be twice of the corresponding numbers applicable for futures contracts.
Risk Management: Clearing Corporations shall adopt risk management framework compliant with the CPMI-IOSCO Principles for Financial Market Infrastructures.
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