Securities and commodities regulator SEBI is considering delivery-based commodity options when it finalizes the framework for commodity options contracts.
SEBI is expected to come out with detailed guidelines for commodities options in the second week of February.
Under the proposed guidelines, options positions will be converted into futures positions three days prior to the tender period. Currently, traders in commodity futures have a choice of taking delivery or giving delivery of the commodities they are trading in.
The tendering period, which is usually the five days preceding expiry, is when there is maximum trading activity as traders decide on the settlement mode — physical or cash.
SEBI is keen on delivery-based options in commodities, said a source familiar with the development.
“The traders will have a choice to convert the options into futures three days prior to the commencement of the tendering process as the volumes peak during this time," the source told Moneycontrol.
SEBI will provide the chance to settle in cash before this proposed three days. If the options holder converts his option positions into futures, they shall be obligated to take or give delivery, as per the futures contract specifications.
After finalising the guidelines in the first week of February, SEBI will submit it for review, ahead of the next board meeting the regulator around February 10. However, SEBI will allow only one product from each exchange, and based on the response consider more approvals.
The position limit for options contracts is likely to be three times that for futures contracts to allow big traders to hedge their positions.