1. 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
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2. 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. 
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3. 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.
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6. 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.
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7. Comparison Chart between Futures & Options
Standardized contract?
Yes
Traded on exchanges?
Daily settlement?
Margin account required?
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8. 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.
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9. 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.
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10. Open for Discussion… Thank you very much.
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