Options Contracts In Commodity Trading - The Game Changer Options Contracts In Commodity Trading - The Game Changer! Presented at Globoil , Mumbai  Presentation By: VIJAY SARDANA PGDM (IIM-A), M.Sc. (Food Tech.) (CFTRI), B.Sc. (Dairy Tech.), Justice (Harvard), PG Dipl. in Int'l Trade Laws & Alternate Dispute Resolution (ADR) (ILI), LL. B (in Progress) Specialized in Food & Consumers Laws, IPR & Contract Laws Agribusinesses Value Chains, Commodity Markets & Innovation Management Food Trade & Agribusiness Strategist Blog: Vijay Sardana Online

Options – A Risk Management Tool An options contract is an agreement between two parties to facilitate a potential transaction on the underlying security at a preset price, referred to as the strike price, prior to the expiration date. An options contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular asset at a later date at an agreed upon price. Options contracts are an important tool which give traders the opportunity to hedge their commodity stock positions.  Options allow for a leveraged position on a stock, while mitigating the risk of the full purchase.  Blog: Vijay Sardana Online

Major Risk in Edible Oil Business Price Risk – Price may fluctuate in unexpected direction Quality Risk – The quality may deteriorate with time Quantity Risk – In India, you may face Stock limits as well. Any tool which can reduce the above mentioned risk can change the fortune of the participants in commodities business. Blog: Vijay Sardana Online

Blog: Vijay Sardana Online

Blog: Vijay Sardana Online

Options – A Very Powerful Risk Management Tool Price Risk of raw material or finished goods Quality Risk – The quality may deteriorate with time Quantity Risk – In India, you may face Stock limits as well. Cost of Doing Business – If exchanges operate options in logical manner in line with expectations of user industry, it can substantially reduce cost of doing business for user industry. Blog: Vijay Sardana Online

Comparison Chart between Futures & Options Standardized contract? Yes Traded on exchanges? Daily settlement? Margin account required? Blog: Vijay Sardana Online

Why Options can become Game Changer? Futures Options Transaction mandatory Yes; the buyer and seller are both obligated to complete the transaction on the specified date at the price set in the contract. No; the buyer has the option but not the obligation to complete the transaction. The seller is obliged to transact if the buyer of the option chooses. The price at which the transaction will occur is set in the option contract. Transaction date The date specified in the contract Any time before the expiry date specified in the contract Cost of Hedging Risk Buying an option requires a premium. The premium is the most he can lose. Entering into a futures contract requires no upfront cost aside from commissions. Blog: Vijay Sardana Online

The Way Forward Oilseeds and edible oil industry should create a committee to look into various dimensions of derivatives market Give your suggestions to SEBI Initiative dialogue with all exchanges to identify who is more responsive to your needs Undertake an aggressive Capacity Building Program for CEOs, CFOs and HODs of edible oil industry on how to successfully use derivative markets for hedging Due to changing demand-supply situation in India, Global Geo-politics and Climate Change, Commodity Risk management will be key to success in coming days. If author can be any help, pl. do let me know. Blog: Vijay Sardana Online

Open for Discussion… Thank you very much. For this presentation & more details, you may visit Blog: Vijay Sardana Online Blog: Vijay Sardana Online