Options in MCX - Beginng of New Era for Commodity Trader

#12
Commodity options Trading is not meant for pure Intraday Traders. It is starting for people who hold their positions for a long time and can not watch the futures price play of the market for full day . It is for traders who like to buy and hold a option , may be till expiry, and not be concerned about intraday extreme fluctuation in price of a commodity against their trading position. ;)
 

headstrong007

----- Full-Time ----- Day-Trader
#14
Commodity options Trading is not meant for pure Intraday Traders. It is starting for people who hold their positions for a long time and can not watch the futures price play of the market for full day . It is for traders who like to buy and hold a option , may be till expiry, and not be concerned about intraday extreme fluctuation in price of a commodity against their trading position. ;)
Above type of positional long option traders are usually the easy target for pro option writers(they take the reverse position and 80-90% of the time they are winners).
But it is the intraday traders who provide the liquidity for the market. If we analyze the daily traded volumes and OI, we can easily understand that.

Without heavy participation from intraday traders/very short term swing traders bid ask & slippage gets wider. One time positional option buyers can't provide the liquidity in the market.
If intraday traders/speculators/very short term swing traders don't participate in a big way, options like 1kg Gold will be a sure shot failure....bcoz traders will lose big every day due to wide bid-ask spread and slippage.
 
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#15
Above type of positional long option traders are usually the easy target for pro option writers(they take the reverse position and 80-90% of the time they are winners).
But it is the intraday traders who provide the liquidity for the market. If we analyze the daily traded volumes and OI, we can easily understand that.

Without heavy participation from intraday traders/very short term swing traders bid ask & slippage gets wider. One time positional option buyers can't provide the liquidity in the market.
If intraday traders/speculators/very short term swing traders don't participate in a big way, options like 1kg Gold will be a sure shot failure....bcoz traders will lose big every day due to wide bid-ask spread and slippage.
I am not convinced that these low capital individual intraday traders have a big influence on long term pricing of an active option . The net movement of the price of the option (or any active futures) because of the intraday trading activity of the small capital guys is zero at the end of every day. The big money guys move the price of an option or its underlying significantly over large Timeframes. The market is too big for small money to move the prices significantly over a period of time greater than a day.
 

RockyRobust

Well-Known Member
#16
Indian Exchanges seem to be the slowest among peers. First Gold , then they will wait for a long time and then will try to bring some other commodity with Options. The most liquid being Crude would have been the best choice but who knows what the criteria of MCX officials for Gold.

Anyways something is better than nothing !!
 

headstrong007

----- Full-Time ----- Day-Trader
#17
I am not convinced that these low capital individual intraday traders have a big influence on long term pricing of an active option . The net movement of the price of the option (or any active futures) because of the intraday trading activity of the small capital guys is zero at the end of every day.
I clearly said intraday traders/speculators/very short term swing traders... all types of intraday traders in that list including high capital professional traders and scalpers who trades repeatedly with high volumes. Those traders provide the much-needed liquidity in the system.
The liquidity, slippage, and bid ask difference is completely different topic than your topic of influence on long term pricing of an active option. U misunderstood the point completely. I was talking about all intraday traders/speculators/very short term swing traders including big volume pro day trader and scalpers. The topic was about liquidity concern, not the influence on the net movement of the price of the option.
Another point:-
95% of losers(approx in general in f&o trading) provide the liquidity. Winners take the money only from those losers in a zero sum game. If there are few losers (mainly beginners with low capital are main losers- are absent)then their money is absent for handover to the winners. Which cost the liquidity also. Actually the winners start loosing from wider bid ask spread and slippage. That was the topic.
 
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headstrong007

----- Full-Time ----- Day-Trader
#18
Indian Exchanges seem to be the slowest among peers. First Gold , then they will wait for a long time and then will try to bring some other commodity with Options. The most liquid being Crude would have been the best choice but who knows what the criteria of MCX officials for Gold.

Anyways something is better than nothing !!
We have to wait longer for crude....missing opportunities...
SEBI also give permission for an agri option. Which one is it? Any one know?
 
#19
I clearly said intraday traders/speculators/very short term swing traders... all types of intraday traders in that list including high capital professional traders and scalpers who trades repeatedly with high volumes. Those traders provide the much-needed liquidity in the system.
The liquidity, slippage, and bid ask difference is completely different topic than your topic of influence on long term pricing of an active option. U misunderstood the point completely. I was talking about all intraday traders/speculators/very short term swing traders including big volume pro day trader and scalpers. The topic was about liquidity concern, not the influence on the net movement of the price of the option.
Another point:-
95% of losers(approx in general in f&o trading) provide the liquidity. Winners take the money only from those losers in a zero sum game. If there are few losers (mainly beginners with low capital are main losers- are absent)then their money is absent for handover to the winners. Which cost the liquidity also. Actually the winners start loosing from wider bid ask spread and slippage. That was the topic.
Nope. My original point was that the options on commodity futures is mostly for the long term traders, who are not happy with futures because of extreme price fluctuation intraday affecting margin calls. If you only buy options then you dont have to worry about margin calls till expiry. That's the standout feature of option for long term traders/hedgers over futures trading. This is in a simple case but there are some traders who like to employ strategies on options as a matter of trading , basically long and short in the same asset at the same time. But the options trading in commodities is not meant by sebi/govt. for short term speculators but legitimate hedgers who hold positions for a long time.

Also, on liquidity front in options there is not going to be huge affect on prices for long term traders as Arbitrage activity (between MCX and Comex) will keep it in check.
 

headstrong007

----- Full-Time ----- Day-Trader
#20
I can only say short term speculators provide the liquidity in the system. Hedgers can't buy/sell big volumes@their price without enough liquidity...For any buying selling, there must be some one present at the opposite side of the trade. If there is not enough liquidity, u have to compromise with the price...Slippage on the average price for executing the big volumes will be big. My point is clear.

Previously India VIX trading concept was failed due to no matching of the buyer-seller. Still, many ones want hedge using it, but there are no opposite sides... no liquidity at all.

Just wait, we will see the bid-ask spread & open interest in 1kg Gold options soon and how the experiment of launching first a 30lakh Gold contract goes on vs 3 lakh Crude contract. No need to argue further, time will tell the result. We'll see the health of Gold options soon by observing bid-ask and OI.
 
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