17.1 – Commodity options, finally!

My first commodity trade was on pepper futures, and this was sometime towards the end of 2005 or early 2006. Since then, I’ve closely tracked the developments of the commodities market and the commodities exchanges in India. MCX has done a tremendous job in promoting commodities market in India. They have continuously introduced new contracts and enhanced market depth. Liquidity too has improved much fold since then. If I remember right, sometime around 2009, there was an attempt to introduce options in the commodity market. Needless to say, when I first heard about this, I was quite excited thinking about all the possibilities that one would have trading commodity options.

But unfortunately, this never came through, and the commodities options were never introduced in the market. Since then, this topic on commodities options has surfaced a couple of times, but each time, it just remained a market rumour.

However, it now appears that options on commodities will finally hit the market sometime soon. Around June 2017, SEBI cleared the files to permit commodities options.

You can read the new article here.

Since then, commodities exchanges have been working hard to build a good framework to introduce commodities options. Given this, I thought it would be good to have this quick note on what to expect and what to look for in the commodities options market.

For those who are not too familiar about options, I’d suggest you start reading the module on Options here.

Just like futures, the options theory for commodities would remain the same. You have just to pay attention to logistics, and that’s the objective of this chapter.

17.2 – Black 76

One of the important bits that you need to note with commodity options is that these are options on Futures and not really the spot market.

For example, if you look at a call option on Biocon, the underlying for this option is the spot price of Biocon. Likewise, if you look at Nifty options, the underlying is the spot Nifty 50 index value. However, if you were to look at an option on Crude Oil, the underlying here is not the spot price of Crude Oil. This is quite intuitive as we do not have a spot market for Crude Oil or for that matter, any commodities in India. However, we do have a vibrant futures market. Hence the commodity options are based on the commodity futures market.

If one were to talk about the crude oil options, then you need to remember the following –

  1. The underlying for Crude oil option is Crude oil Futures.
  2. The underlying for crude oil futures is the price of Crude Oil on NYMEX.

So in a sense, this can be considered a derivative on a derivative. For all practical purpose, this should not really matter to you while trading. The only technical difference between a regular option (with spot as underlying) and option on futures is how the premium is calculated. For the former, the premium can be calculated by using a regular Black & Scholes model, and for the latter, a model called Black 76 is used.

The difference between these two models is how the continuous compounded risk-free rate is treated. I will not get into the details at this point. But do remember this – there are plenty of Black & Scholes calculators online, so don’t be in a hurry to punch in the commodities variables in a standard B&S calculator to extract the premium value and Greeks. It simply won’t work. ☺

17.3 – Contract Specifications

We still do not know how the exchanges will set up the framework for these options. However, we did take a look at the mock framework, and I’m guessing it won’t be too different from that.

To begin with, exchanges may roll out Gold options, and would slowly but for surely introduce options on other commodities. Here is the highlight.

Option Type – Call and Puts

Lot size – Since these are options on futures, the lot size will be similar to the futures lot size

Order Types – All order types would be permitted (IOC, SL, SLM, GTC, Regular, Limit)

Exercise style – Options are likely to be European in nature.

Margins – SPAN + Exposure margin applicable for option writing and full premium to be paid for option buying. A concept of devilment margin will come into play, I’ve discussed this towards the end.

Last trading day (for Gold) – 3 days before the last tender day

Strikes – Considering one ‘At the money strike’ (ATM), there would be 15 strikes above and 15 strikes below ATM, taking the total to 31 strikes.

This is where it gets a little tricky. Equity option traders are used to the following ‘Option Moneyness’ convention –

  1. At the Money (ATM) Options = This is when the spot is in and around the strike. So in a given series, only 1 strike is considered ATM.
  2. In the Money (ITM) = All call option strike below the ATM and call put option strikes above the ATM are considered ITM options.
  3. Out of the Money (OTM) = All call option strike above the ATM and call put option strikes below the ATM are considered Out of the Money (OTM) options.

However, the commodities options will introduce us to a new terminology – ‘Close to Money’ (CTM) and this is how it will work –

  1. ATM – The strikes closest to the settlement price is considered ATM
  2. CTM – Two strikes above and two strikes below ATM are considered CTM
  3. OTM and ITM – The definition remains the same as in Equity.

Settlement – For daily M2M settlement in Futures, the exchange considers the commodities daily settlement price (DSP) as the reference value. The DSP of the commodity on the expiry day will therefore be the reference value for the options series as well.

Let’s quickly understand how the settlement works. Consider this example – Assume the DSP of a commodity is 100. Assume this commodity has a strike interval at every 10 points. Given this, let’s identify the moneyness of strikes –

  1. ATM = 100
  2. CTM = 80, 90, 100, 110, and 120. Note, we have included two strikes above and below ATM
  3. OTM = All Call option above 100 and all Put options below 100 are considered OTM and therefore worthless
  4. ITM = All Call options below 100 (including 80 and 90, which are CTM) are ITM, and all Put options above 100 (including 110 and 120, which are CTM) are ITM.

All long option holders which are ‘CTM’, will have to give something called as an ‘explicit instruction’. An explicit instruction will devolve the option into a futures contract. The futures contract will be at the strike. For example, if I hold 80 call option, then upon an ‘explicit instruction’, the call option will be devolved into a long futures position at 80. I’m guessing the ‘explicit instruction’, will be tendered via the trading terminal.

Now, here is an important thing that you need to remember – If you do not give an explicit instruction to devolve your CTM option, then the option will be deemed worthless.

All ITM option, except CTM, will get automatically settled. You need to be aware that settlement in the options market is using devolving the option into an equivalent futures position. If you are holding a non-CTM, ITM option and you wish not to settle this automatically, then you need to give a ‘Contrary instruction’. In the absence of which, the contract will be automatically settled using devolvement.

Now, the question is, why would you not want to exercise an ITM option?

There could be an instance where the ITM option that you have may not be worth exercising given the taxation and other applicable charges. So, in this case, you are better off not exercising your ITM option rather than exercising it. So, this is when you use the ‘Contrary instruction’, privilege and opt not to exercise your ITM option.

17.4 – Devolvement into a Futures contract

So assume you have an ITM (including CTM) option, and upon expiry, the option will be converted (or devolved) into a Futures position. Now, we all know that a futures position requires margins to be parked with the broker. How do we account for this? I mean, when I go long on option, I have to pay for the premium right? Naturally, at the time of buying the option, I would not park additional margin anticipating that the option ‘might’ get devolved into a futures position.

To circumvent this, there is a concept of ‘Devolvement Margin’. I will cut through the technicalities and let you know what you should know and expect –

  1. Commodity options will expire a few days before the first tender date of the futures contract. This means, there will be a few days gap between the expiry of the futures contract and the options contract.
  2. Few days before the options can expire, exchanges will conduct a ‘What if scenario’ and generates a ‘Sensitivity Report’ to identify strikes which are likely to be ITM and CTM.
  3. For all such options, exchanges will start assigning ‘Devolvement Margin’, this means you will have to fund your account with enough margin money to carry forward the option position. Half of the required margin needs to be available a day before the expiry and the remaining half on the day of expiry of the options contract to convert the position to a futures contract.
    For example, The Expiry of the Gold option contract is on 28 November 2017, and the futures contract expires on 5 December 2017. Half of the margin needs to be added to the account on 27 November and the remaining on 28 November
  4. If you are holding a deep ITM option, then the profits arising out of this position will be considered to offset a portion of the margins required
  5. Given the above point, the deeper the option, lesser, would be the margin required. This also means CTM options will attract higher margins.
  6. In simpler words, if you are holding a commodity option, and it’s likely to expire ITM, and you intend to carry to expiry, then you need to ensure you bring in margin money as you approach expiry.
  7. How much margin, expiry dates, tender date etc. will vary based on the commodity

Here is a quick note on how the options position will be devolved.

Option Position Devolved into
Long Call Long Futures
Short Call Short Futures
Long Put Short Futures
Shot Put Long Futures.


I guess as, and when the option contracts roll out, we will have greater insight into the structure. I will update this chapter when the commodity options roll out with the exact information.

Stay tuned.

Key takeaways from this chapter

  1. Options on commodities will be on Futures as underlying.
  2. One cannot use the regular Black & Scholes Calculator for identifying the premium and Greeks.
  3. Black 76 is the model used for Options on futures.
  4. Upon exercising the option devolves into a futures position.
  5. CTM options are two strikes above and below ATM
  6. If a CTM option holder does not give explicit instruction, then the option is deemed worthless.
  7. An ITM option holder can give a ‘contrary instruction’, to choose not to exercise the option. You will opt for this if you know that the position is not going to be profitable owing to taxes and applicable charges


  1. madhav says:

    when it strart ???

  2. Chanakya says:

    When will commodities options starts???

  3. Isaac says:

    Wonderful, i can trade commodity options till 11:45 pm.

  4. nikhil says:

    can we apply the same option theory and option strategy for commodity market?

  5. Amarjeet Singh says:

    I have been waiting for this for many years because I know the huge opportunity for making fortune in short commodity future’s options, as the premium would be fat. I have the following questions though:
    1. If I am short call/put options, can I square off the position anytime I want to or I have to wait for Expiry day (Because of european style options). If no then that means we have to carry losses without having an option to square off. That will be disastrous situataion.
    2. Is it possible to square off short options in cash always as I don’t want my short options to be devolved into futures.
    3. What will be likelihood of the options been rigged off in the beginning? I am scared may be some big players take us for a ride perticularly in the commencement months.
    4. Do we have to open commodity account with Zerodha to trade commodity options.

    • Karthik Rangappa says:

      1) You can square off anytime, no need to wait till expiry
      2) Its best if you square off the position before the tender date and cash out
      3) Exchanges work on robust framework, this is unlikely to happen
      4) Yes, this is if you wish to trade through Zerodha.

      • Amarjeet Singh says:

        Thank you Karthik!!!
        Then why is it european style options. They both can be squared off any time. What do they mean that european style options can only be exercized on expiry? Does that mean that ITM options of buyers can not be squared off before expiry? or it means that only cash square off of ITM options are allowed and not devolvement of ITM options before expiry, I think the latter is most likely answer to my own question.
        I am familiar with the equity options of NSE for a long time. And I am very comfortable with them. Now this beast comes up for which I am desparately waiting since announcement 2 years back. Almost daily I search for commodity option start date. But now it seems its nearby.
        Apart from the commodity options, there was a news about 6 months back about commencement of Cross currency futures and options. But now it seems they are out of the basket of hope.

        • Karthik Rangappa says:

          Yup, its to do with devolvement I guess. Btw, this is just the draft..we should see how the final product would shape up.

          Lets just hope we have good vibrant (liquid) capital markets in the coming days.

  6. rohit sharma says:

    Hi Sir,
    I read module many times but not able to understand completely,
    But I think if you please explain in terms of Nifty I would understand better
    I usually trade in nifty and banknifty options only
    Let nifty spot is 10006 and nifty future is at 10020
    I short call option 10100@50
    On expiry nifty is at 9900
    I would get 75*50,
    If we imagine the above scenario to be traded just like what you explained, what I would get premium or future contract
    Please explain

  7. musheer says:

    Sir do u ve any idea about wat ill be d premium on gold ill be an average.. like 10k o below 10k.. pls do reply

  8. Amarjeet Singh says:

    It was announced that the Gold options would start somewhere between 6th and 12th October. But it’s almost 10 October and there is no announcement yet?
    Any news or idea if they are launching GOLD OPTIONS before Diwali or not?

  9. Deepak.wanjale says:

    It will start in next 8 days

  10. krishna says:

    gold options starts from which date sir.

  11. Kuldeep says:

    Sir wen we will see zerodha starting eq an commodity trading by same acc

    • Karthik Rangappa says:

      When SEBI comes out with a circular approving brokers to do this 🙂

      • Kuldeep says:

        But I think sebi has allow because I saw this on mcx’s wevsite Circular no.: MCX/MEM/386/2017 October 13, 2017
        Sub: Waiver of Admission/Transfer Fees – Integration of Broking Activities
        Members of the Exchange are hereby notified that in order to encourage existing Members
        of MCX/ Members of Equity Exchanges (duly registered with SEBI) to avail the facility of
        Integration of Broking Activities, a waiver has been granted in Admission Fees/Transfer
        Fees. Accordingly, the following amendments are made in the Business Rules of the
        Exchange by inserting Business Rules 11.1 and 11.2 in Chapter 1 of the Business Rules of
        the Exchange:
        11.1 No Admission Fees/Transfer Fees shall be charged to the existing Members of
        MCX/ Members of Equity Exchanges (duly registered with SEBI) applying for
        new membership or transfers of membership through
        amalgamation/merger/transfer, up to September 30, 2018, provided the
        documentation and other processes are complete by the said date.
        11.2 The waiver has been made applicable to Applications received after July 13,
        2017 (i.e. the date on which SEBI allowed integration of Broking Activities).
        The above amendment in Chapter 1 of the Business Rules of the Exchange shall come into
        force with effect from the date of this circular.
        Members are requested to take note of the same and ensure compliance.
        Vandana Vania
        Sr. Manager – Membership
        Kindly contact Membership Team on 022 – 6649 4080 or send an email at
        [email protected] for further clarification.
        ——————————————————- Corporate office ——————————————–
        Multi Commodity Exchange of India Limited
        Exchange Square, CTS No. 255, Suren Road, Chakala, Andheri (East), Mumbai – 400 093
        Tel.: 022 – 6649 4000 Fax: 022 – 6649 4151 CIN: L51909MH2002PLC135594
        http://www.mcxindia.com email: [email protected]

  12. Aniket says:

    Hi Sir
    I am confused about last trading day and settled price, please help
    Which is last trading day it is 5th or 2nd of every month
    If it is 2nd, settled price of which date would be considered?

    • Karthik Rangappa says:

      Last trading date would be 3 days prior to the tender date. For settlement, the exchange would consider the daily settlement price (DSP).

      • Aniket says:

        Actually Sir I was asking, If I sell one call option then final settlement would be according to which date settlement price?

        • Amarjeet Singh says:

          Logically it should be DSP of the Option’s expiry day and not the future’s expiry day. Suppose gold’s DSP is 30050 then the 30000 CE of Gold should be 50 Rs ITM. and 30100 strike CE should expire worthless as OTM.

          • goldtrader says:

            Looking at the handouts at mcxindia, Option contract will devolve into a futures position as if taken at the strike price of the Option contract.
            Ex:One Call option of strike 29600 bought at 250Rs will devolve into a future position as if bought at 29600. You wud hv 3 days to close/rollover the future position.

  13. Amarjeet Singh says:

    I can’t see Gold options in Pi yet. Why is it not updated as the trading in Gold options is starting in 30 minutes @10am. and at 9:30 Zerodha (Kite and Pi) is not ready to offer this product. I was hoping that it will get updated in the securities master of Pi well in advance.

    • Karthik Rangappa says:

      We will go live next week, Amarjeet. Meanwhile, I’d suggest you give your consent to trade MCX gold options here – https://zerodha.com/mcx-options/

      • Amarjeet Singh says:

        When I clicked on your above link I got a message that my commodity account is not enabled. I used to trade in commodity some months back. How come it’s not enabled. And what is the procedure to enable it?

        • Amarjeet Singh says:

          Done. I was able to successfully give consent for Gold options trading. Thank you.


          • Karthik Rangappa says:

            No timeline yet, Amarjeet. Hopefully, very soon 🙂

          • Amarjeet Singh says:

            I used to search google for about two years “gold options starting in mcx India”
            Now I am searching Zerodha “Zerodha commodity options trading start”

            It’s a long searching game. I hope will end soon!!!

        • Karthik Rangappa says:

          Are you sure you were trading within us? If yes, then I don’t see how this could have happened. Will get this checked.

          • Amarjeet Singh says:

            Oh no!!!
            That time I logged in with my brother’s account details whose commodity account is not activated. I realized it later and then I logged in with my account and so….I could give consent easily then….wooooooos

          • Karthik Rangappa says:

            Don’t worry, markets are full of opportunities!

  14. musheer says:

    Sir wat s d premium for gold

  15. Rahul says:

    How much premium is required to sell call option.

  16. Amit says:

    When is zerodha starting gold options? any approx timeframe?

  17. Vijay Dhuri says:

    Dear sir, why I am not able to load Gold Option in my Pi Software, I can see MCX Fut only Please Tell me , Have i need to update any kind of Software ?

  18. shihab says:


    Why zerodha kite or pi not getting MCX gold option contract for trading ? or please advice the script name.

  19. Maddy says:

    https://zerodha.com/margin-calculator/SPAN/ this doesnt list margins for Gold Options.
    If you can tell apprx prices for option selling- it’ll be greatly helpful..
    And there’s no volatility listed on https://www.mcxindia.com/market-data/option-chain , is that alright??
    Will you release Greeks calculator for Black 76 too???

  20. Kajal Umaretiya says:

    Option training in mcx have started?

  21. Kajal Umaretiya says:

    Mcx Commodity Options Trading started?

  22. Niket says:

    I have account in zerodha equity…if i want start trading in gold option then i have open account in mcx or will it ok on current account..

  23. Aishwary Singh says:

    are options on commodity available now to trade?

  24. venkat rao says:

    what will be the margin required to write Gold options call at strike price of 29800

  25. Sucheta says:

    Has the MCX Gold option started on Zerodha?

  26. deepak naha says:

    Hi Karthik–can u share some successful trade setup strategies in commodity and also a detailed explaination.


    What is the tentative start date of Gold Option trading at Zerodha. Its really been long time.

  28. Soumya Kanti Bhattacharya says:

    Dear Karthik.
    As usual awesome tutorial!!!! Could you just tell me the symbol name of Gold option?? So that i can keep it in the market-watch.

  29. Mahesh says:

    I checked NCDEX and MCDEX but could not find any option chain. The gold option is illiquid. Why do you think commodity option has not taken off in India?

    • Karthik Rangappa says:

      Lack of awareness is perhaps the single biggest reason. I think equity markets itself is still in its nascent stage, it will be a while for the commodities market to pick up full steam.

      • Mahesh says:

        Thankyou for replying Karthik. Is there a way to play options in india on gold, crude, soybean and coffee?

        • Karthik Rangappa says:

          Gold options are available on the exchanges, but unfortunately, there is not much activity there. No other commodity options are available.

          • Mahesh says:

            Ok, karthick do you know any other instrument other than nifty, banknifty and stock options where options are liquid enough to write far-out-of the money calls/puts in india?

          • Karthik Rangappa says:

            Along with the names you’ve mentioned, you can look at the top 5 names which constitute the index – like ITC, SBI, TCS, Reliance, and Infosys.

  30. Mahesh says:

    Sorry i mispelled your name

  31. Amit says:

    Am trying to trade crude oil options through kite / pi. However, when I place an order it rejects the order saying: RMS:Blocked for CRUDEOIL OPTFUT mcx_fo block type: ALL. Please clarify.

    • Have you given consent for MCX options to be enabled for your account?If not, do it here.
      If you’ve already consented and still face the issue, please contact support

      • Amit says:

        I have already given consent. I can see the contracts on both kite and pi. I have also contacted support. They say that zerodha has not activated crudeoil options which is hard to believe since I see that there is trading happening.

  32. Sankar says:

    Great job great

  33. santosh patidar says:

    Please mention whether we have to square off put option position say 5 days before expiry otherwise it will be Physical delivery.
    Because yesterday I received an email to square off my position but I wanted to keep that. This question is for contract which has physical delivery obligation. Also mention about other commodities settlement procedure.

    • Karthik Rangappa says:

      It is best if you can square off the position before the expiry, Santosh.

      • santosh patidar says:

        Sir I want to know the exact rule. Since I called Zerodha call & Trade they told me to square off position before 11 pm otherwise settlement issue, I did. But I am not sure why he asked me to close ? Please mention exact rule. Want to leave my position in expiry let exchange settle, Ready to pay STT.

        • Santosh, we do not allow physical delivery of the contract due to operational limitations(Higher margin requirements, etc).
          Therefore, you need to close your position or our RMS team will close the position 5 days before expiry.
          If you want to continue holding the contract, why don’t you rollover the contract to the next month?

  34. Kiran says:

    Hi Karthik,

    Sorry not related to options topic but Other brokerages like Angel Brokerage, Tradejini are already allowing clients to use equity ledger as a common ledger for both Equity n commodity trading. When will Zerodha allow this? Only when NSE launches commodity contracts?

    Best regards,

  35. raju says:

    how to know options expiry dates, on commodities?

  36. Rohit says:

    In equity options there is a concept of implied volatile, but did not found in commodity options. so please let me know whether IV is not considered for commodity option. Is there any option price calculator tool is available for commodities?

  37. ashish says:

    Hi sir,

    Now as the commodity options are being traded and so many changes occurred in it. It will be helpful if you update this COMMODITY OPTIONS segment.

    Thank you

  38. armaan says:

    Dear Sir,
    I am big fan of Zerodha Varsity, I learned a lot reading this.
    I have one question on Crude Oil option expiry –

    Could you explain in detail what is best way to square off short call/put positions?
    For example, Crude Oil SEP 5100CE may be expired worthless (Current FUT PRICE = 4956Rs); expiry date of which is 17/09/2018, Monday. Short trade was initiated on 3rd Sep’18.
    When should I square off this trade if I do not want to get trapped with any extra charge?

    2) Plz explain explicit/contrary instructions with example, if possible.

    • Karthik Rangappa says:

      1) I’d suggest you square off before the expiry date and not really wait for the expiry
      2) I need to check on this, myself. But I guess this is the instruction to take physical delivery of the commodity, which we don’t support at Zerodha.

      • armaan says:

        Thank you so much sir for quick reply.

        I agree that we should square off before expiry date.
        Still, I would like to know your view on this –
        For bank nifty OTM strikes, we have expiry day strategies and strategies 2 days prior to expiry (options selling) to take advantage of time decay since OTM strikes will be worthless upon expiry.
        Having said that, what will you suggest me (regarding squaring off to avoid any extra charge , to avoid devolving to future position if strike price comes out to be CTM) , if I initiate trade 2 to 3 days prior to options settlement date?
        Here I am aware that Options settlement date is 3 business days prior to FUT expiry date.

        Q-2, From where I can download daily closing price of crude oil future for last 2 to 3 years to calculate Average and SD?

        Many Thanks!

        • Karthik Rangappa says:

          You can always square off the position on the expiry day just before the market close i.e around 3:15 PM or so.
          YOu can download this from Pi. Suggest you call our support desk for this. Thanks.

  39. Nandhakumar Subramaniyan says:

    Please update the chapter on commodity options trading on zerodha varisity as commodity trading has already commenced and it would be knowledge feast for aspiring commodity traders.

  40. Rajkumar says:

    Call me

  41. satyabrata nayak says:

    sir i wanted to know how to trade about crude oil option … suppose mega crude oil call of certain strike price is Rs.100/- then how much money is required to buy one lot crude oil call option .. what is the lot size in zerodha …

    please ring & confirm

    regards & thanks


    • You need to have the premium amount to buy crude oil options. For example, if Crudeoil Oct 5300 CE is trading at 100, and the lot size is 100 barrel, you will need Rs 10,000 to take the trade.

  42. Rahul Vyawahare says:

    Sir, can zerodha give guidance on trading in cotton?

  43. Dipjyoti Dutta says:

    What is the margin for writing gold option?

  44. Sripathy says:

    Please help me get this clarified.
    If I write/sell a deep ITM Put option today [for example, 03 Dec 2018] , how does it get settled during expiry [14 Dec 2018]?
    (especially when there are no buyers or sellers at that strike price)

    • Karthik Rangappa says:

      Curious to know, why would you want to write a deep ITM put option? Anyway, the option would be exercised and settled by the exchanges.

      • Sripathy says:

        Thank you Karthik for your time to respond to me.
        I am not sure if my idea is correct but this is what I observed and hence had this question.

        I speculate that the market/particular commodity is going to trend upwards.
        If I write/sell a deep ITM put option, I see that I can get a large premium.
        But I see that the OI is less than 10 most of the times.
        Hence I wanted to understand how the exchanges would settle this during expiry (expecting that OI would be zero during expiry).

        Again here, I have a question.
        You have said “Anyway, the option would be exercised and settled by the exchanges.”
        What do this mean?
        Will it be settled as cash? If so, what would be the STT and other charges?
        Will it be devolved into a Future? If so, will it be in a “Buy” or “Sell” position?
        Please help me understand the above.

        Thanks again, in advance. Your help would be much appreciated.

        • Karthik Rangappa says:

          Hey Sripathy, I’m soo sorry. I didn’t realize this was a query on commodities. The ITM option upon explicit instruction will be devolved into a future contract, which will further lead to deliveries. If you are trading with Zerodha, then its best if you square off the position before the expiry. For this reason, you need to ensure the contract you are trading with has enough liquidity.

  45. Sanjay kumar says:

    Thanks sir for this gratefully support

  46. Gaurav Chaudhary says:

    Hi Sir,
    i want to see wti or brent crude option chain for technical analysis. Can you plzgive me link.

  47. Kanhaiya says:

    Below questions are related to Explicit instruction & Contrary instruction.

    1) What is procedure to select choice between I wish “To give EXPLICIT instruction” and ” Do not wish to give EXPLICIT Instruction” ?
    Do I have a choice to Opt for it every month OR there is fixed/default setting at Zerodha?
    2) What is procedure to select choice between I wish “To give CONTRARY instruction” and ” Do not wish to give CONTRARY Instruction” ?Do I have a choice to Opt for it every month OR there is fixed/default setting at Zerodha?

    • Karthik Rangappa says:

      Can you please give the context on this, Kanhaiya? Thanks.

      • Kanhaiya says:

        Please refer Commodities settlement as mentioned in the above module (17.3)

      • Kanhaiya says:

        I mean to say what is the procedure to opt for EXPLICIT Instruction & CONTRARY Instruction as the case may be? ( This is in reference with Settlement of options mentioned in this module in para 17.3 above)

        • Kanhaiya, if the contract is ITM and you have the required futures margin, we will let the contract devolve into a futures contract on expiry without any additional consent.

          • turtletrader says:

            Hi A few related questions

            1) What happens if the contract is ITM and we do not have requisite margin for it to change to futures contract?

            2) What happens if we do have enough margin and the option is ITM.

            3) What happens in an OTM for both these cases?


          • Kanhaiya says:

            If I have Future position open & at the same time the Long Put position paired with it.
            Question – If the long Put turns into ITM on expiry day of options on 15 March & I do not sell it from my end then it’ll devolved into 19 March Short Futures, right? (correct me if I’m wrong).
            Here, I already have existing long Future from beginning. So in this scenario how it’ll work? It’s little tricky to understand this.

          • Karthik Rangappa says:

            Yes, long PE devolves into short futures, but if you have a long futures position, then it would get net off. So your positions would be 0.

  48. Kanhaiya says:

    Commodities settlement as mentioned in the above module (17.3)

  49. Kanhaiya says:

    Hi Karthik,

    As you mentioned that “long PE devolves into short futures, but if you have a long futures position, then it would get net off. So your positions would be 0 “.
    Here, I would like to know when this happens i.e on option expiry day or what?
    * It’s very important to know this in advance since I already have covered position for March expiry.

  50. Prasanta Chakrabarty says:

    I am an existing customer. Customer ID is QE2165.
    Currently I am having only equity account.
    To open the commodity account I have completed the necessary procedure through online. And then I sent the necessary documents (ECN, Bank Statements, POA) through Blue Dart Courier at least 10 – 12 days earlier. But still I am waiting for login ID and password.

    • Prasanta, could you share the courier tracking details over the Support ticket that you have already raised? We will have your commodity opened once the forms are validated.
      Your login ID and password will remain the same. Commodity segment will be added to your existing login.

  51. skj says:

    Hi Karthik …
    I have following queries on Crude oil option contract ->
    1. Say, my open crude oil option positions being CTM, on expiry date, have been devolved into crude oil futures contract. If i carry the devolved futures contract to expiry, how would the final settlement happen ? Would i be in Cash or will there be physical delivery involved ?
    2. Is there any conceivable way through which by trading crude oil options/futures contract may result in delivery giving/receiving obligation for the underlying i.e crude oil ?
    3. Say the Crude oil futures last traded on 4402, on the option expiry date. I have 4400 PE Sell and 4400 CE Sell options as my open positions. What would be the Close to money and In the money strikes for the scenario ? What would be my net position after devolvement of the options positions into futures ? Is there any extra charge involved in the devolvement process ?

    Thank you …

    • 1. All crude oil futures contracts are cash settled. You will receive an M2M settlement at the settlement price
      2. No, the exchange continues to settle all crude oil contracts in cash.
      3. Both CE and PE are CTM. You get the option to exercise the put positions as it is CTM. The calls are exercised without any instruction(ITM). The positions will net-off on devolvement, net positions will be zero.
      4. No extra charges, normal brokerage and charges apply.

  52. HEMANT GAUTAM says:


  53. Manu says:

    Option trading is intraday ….means if i took a call option then how to calculate profit or loss in that trade ….. exactly

    • Karthik Rangappa says:

      Manu, you can hold the options overnight also. The money you make is the difference between the premium buy price and sell price.

  54. Ankur says:

    Kindly, have a chapter on physical settlement process of commodities and also the devolvement procedure.
    If possible, have a webinar.😁

  55. Prithvi Raj K says:

    There seems to be no liquidity in commodity options. Are they active at all?

  56. Vidyasagar A says:

    Hi – Are options available for all variants of Crude, silver and gold – Asking this because I can not find Gold Mini options, Silver mini options and Crude mini options. I can not find them because they are not traded or because mini’s dont have options offered by MCX ?? pls clarify.

    Also, i see that options premium for At the money calls / puts ranges between 1.5 to 4.5% of the strike price. Some one who has observed commodity options for a while (for famous contracts like crude, silver etc) can comment on the range that they have seen ? is it observed beyond the range of 1.5% to 4.5% ??

    Thank you,

    • Karthik Rangappa says:

      The contracts are available only for the main contract and not mini. The price of the option depends on many other factors, and not really as a % of strike.

  57. E.Manikandan says:


    I have few questions on crude oil options as this physical settlement is confusing,

    Currently crude is trading at 3780, suppose i want to sell 4000ce at 6rs. Tomorrow is the expiry.
    1.What will be the margin money required to sell it? Today and tomorrow for one lot.
    2.Will it be physically settled? As i just want to collect premium.
    3.what will happen if i let it expire?
    4.How do i find OTM options in crude options?

  58. E.Manikandan says:

    I mean how do i find from which strike it is OTM?

  59. Prince Raj says:

    Hi Karthik,
    I saw in twitter a trader mentioned he lost a huge amount trading options because of options-freeze. A few questions if you can help:
    a) What exactly is options freeze and how does it happen?
    b) How is it possible for options-freeze in Nifty and BankNifty where there is enough liquidity?
    c) Can an options-freeze happen in commodity (like crudeoil) where there is less OI volume?
    d) Lastly i wish to create a options-strategy builder for MCX options, and see the payoff. I have subscription to sensibull, but they dont have MCX payoff support, any other place you are aware of?

    Thanks much.

    • Karthik Rangappa says:

      I’m assuming by options freeze, you mean quantity freeze per order –
      a & b. Freeze quantity per order is set by the exchange to ensure that there are no fat finger orders placed. If you are trading huge quantities, you would have to split it into multiple orders. Quantity freeze for Nifty and Banknifty is 5000 and 2500 respectively.
      c. Yes, quantity freeze exists for MCX contracts too.
      d. Looks like Sensibull is still working on adding MCX contracts to their portal. Can’t think of any other platform providing MCX options.

  60. Prince Raj says:

    Karthik, and what happens when there is an F&O ban on a certain security, and we are holding long/short position on that option? If it is OTM option and we are short, then fine. It expires worthless, but what if it is ITM and we are buyers? How do we square-it off else we pay huge STT.

    Please suggest.

    • Karthik Rangappa says:

      Under F&O ban, you can exit the open position but cannot initiate new ones. So there is no problem as such.

  61. ratan says:

    Hi Karthik,
    I have a query regarding crude options on MCX.
    Is it possible that a short ITM put option doesn’t get devolve in futures contract?
    If yes, then what should be the settlement price of the put option?

  62. ratan says:

    Thanks Karthik. I was under the same impression that ITM should compulsory get devolved. However on 15th Jan 2020 settlement. Some of my puts were not devolved into futures. Basically i was short on 5 crude Jan 20 futures and short on 5 crude Jan 20 4200 Put. The future contract closed at 4100. Ideally my put options would have been offsetted by the futures but it didn’t happen and i had to manually offset the futures on 16th Jan.

    Zerodha support team had mentioned the below to me.

    “As per our telephonic conversation, orders were placed for the devolvement and due to the unavailability of the counter party the devolvement and hence the same was settled at 0 from the exchange.”

    Request you to guide us on the devolvement process.

    Thanks a lot!

  63. Mangesh Kadam says:

    I have gold option PE 37000. Who’s current value is 0.5. I am trying to sell this option but there are no buyers. What will happen to the option if I could not find buyers by today EOD?

    • Karthik Rangappa says:

      Assuming, the order will get cancelled by EOD. If its expiry, then the option will expire worthless, there is nothing much you can do.

  64. Anuj Jain says:

    I am holding equity account with you. I want to trade commodity also. Please let me know the procedure of the same.

    • Karthik Rangappa says:

      You will have to open a commodity account for this. I’d suggest you call the support number for this, they will help you.

  65. Aditya says:

    I have the following position in Crude MARCH options.
    Long Put 2200 and Short Put 2300. It is a hedged position. Crude closing price on 13 March is 2396.

    What will happen to this on expiry if crude stays above 2300? The expiry is on 17 March.
    Can you please guide?

  66. BINU ABRAHAM says:

    CRUDE OIL 1400 PE closing price on 24/03/2020 was Rs 146.on 25/03 2020 opening price was 120 and the upper circuit price was Rs 123.10. why is it so?

    on what rule the circuit limit in options price is made

  67. Shakir hussain says:

    Convert my position in normal

  68. Ashlesha Natu says:

    I am very new to Commodity Trading and have never done any option trade in commodity, hence please bear me for the following basic question –

    Current price of the 1500PE of CRUDE OIL is around 135 – Expiry 16/4/20
    If I sell 1 lot of this and do not square off my position on the expiry day, what will happen –
    If the Crude Apr Future price closes at say, 1450, 1500 and 1550

    Request the experts to guide me on the above


    • Karthik Rangappa says:

      As long as the price of crude stays 1500 PE or above, you are safe and can get to retain the entire premium of 135. Anything below 1500, you will be in trouble. The loss will be to the extent of the decline in the underlying i.e. crude.

  69. Ashlesha Natu says:

    Thanks Karthik for the prompt reply.
    My apprehension is because of the low quantity being traded in Crude Options. If I have sold say 10 lots of 1500PE. So on the expiry day i have to square off the position by placing a Buy order. Now if I don’t find any seller(s) from whom I would buy and square off my position and it remains open, then what would happen
    e.g. The future closes at say 1550, then would I get the entire premium of 135 (sub to deduction of regular charges/taxes), even if I don’t square off my position
    Sorry if I am being repititive, but my confusion is due to low traded volumes in Crude options

    • Karthik Rangappa says:

      Ashlesha, you need not have to worry about this. The role of the exchange is to ensure the trade is settled between the buyer and the seller and ensure the P&L is settled. However, it is always better if you can close the position yourself to avoid getting in an illiquid situation.

  70. Anand says:

    1. What is span amounts it is refundable or not?
    2. my Trade in currency when I sell option system show not performed due to low liquidity next day Saturday show +155 into -155 ?
    3. When fund is adding in commodities system show not active which is already active..

    • Karthik Rangappa says:

      1) Yes, SPAN gets blocked till you have your positions open
      2) Hmm, I’d suggest you speak to the support desk for this
      3) Same as 2.

  71. Ashlesha Natu says:

    Thanks a lot Karthik for clarification. It was helpful 👍

  72. Ramesh says:

    Gold underlying price 45000. Am trying to buy 44000 PE.Buy long 44000 PE is rejecting even the seller s there and margin s there.
    Getting rejected reason as strike price is outside the allowed range or check margin requirements.

    Please explain how the allowed strike range is calculated and other margin requirements for mcx long position specifically .

    Thanks …

  73. Vijay says:

    Hi Guys,

    Nice article…I am new to commodity as an asset class.

    My queries as under:

    1. In the MCX option chain, I only see 5 commodities (even though Zerodha varsity covers many more) – Copper, CrudeOil, zinc, gold and silver and for almost all, the liquidity is v poor…so, what is the best way to trade them? Even if I deploy a strategy which uses future, iquidity issue in Options will impede proper hedging
    2. Are there any ETFs for any commodity other than gold?…for example, if I want to take a 12-18 month bet on crudeoil, how can I do that currently?
    3. Is there a reference sheet where I can see the default lot size for each commodity (like 1 lot crude = 100 qty)?
    4. Can you please suggest some good resources for additional reading to understand the dynamics of crude oil, silver, gold?


    • Karthik Rangappa says:

      1) True, liquidity is quite shallow in the commodities option markets
      2) No, unfortunately, nothing available for Crude
      3) No, but it may not be a bad idea to put it up excel, takes 5 minutes, especially if you are clear about the commodities you’d like to trade.
      4) I’m not sure if there is any with Indian context, but there are plenty online from the International markets perspective.

  74. vijat says:

    Thanks Karthik

    1. With poor liquidity in options, how do traders hedge their futures’ positions? This issue is amplified as liquidity is v poor even in far month futures….so, no hedge and risk of being right in near month!….wondering how such a large market happens with these constraints as over 90% of market comprises speculators
    3. I know for crude oil…what is the lot size for gold?


    • Karthik Rangappa says:

      1) Difficult in the commodities markets for the reasons you’ve mentioned
      2) 1 KG, the multiplier is 100

  75. Varun Agrawal says:

    Hello Karthik,

    Just some basic questions. Thank you so much for helping me in previous modules so far 🙂

    #1: Which future contract is applicable to options? I assume it will be the same month contract for each option? Like May FUT for May Options and June FUT for June Options?

    #2: Do currency options use spot or futures prices as a base?

    #3: Can you tell the name of major tax which is applicable when we can MCX options to future contracts at the end of the month? Is it STT? I think it’s not a problem anymore right? https://tradingqna.com/t/starting-sep-1st-finally-no-more-stt-trap-on-exercised-options/61795

  76. Chandradeep Kumar says:

    Hi Sir, you have said that you will update this chapter but you haven’t though. Please update as this information is quite shallow.

  77. DEEPANSHU says:

    Hey sir,

    Please provide the information regarding to option writing in Gold options. What is the margin requirement to write a gold option. Thanks in advance.

  78. Naresh pruthviraj soni says:

    Commodity option treding in

  79. Ravikumar Disa says:

    I am already having Shares Trading Account with you. Can you add commodity account in the same? or what is the procedure for adding account. Kindly reply.

    MOB : 9373569700

  80. Inder K says:

    ATM = 100
    ‘if I hold 80 call option, then upon an ‘explicit instruction’, the call option will be devolved into a long futures position at 80’
    the premium which i was getting in option will help me to offset against the margin reqirement
    but sir how would be the P/L in futures
    will i get 20, if the future expire on 100
    and what about the gain that i have made on option premium

  81. prakash chandra suntha says:

    sir why i am not trad in commodity section .my all decument already submitted

  82. Neeraj says:

    Sir commodity option not treading

  83. Suyog says:

    Somebody help me to understand this better by video if possible. 😛

  84. Nabeel says:

    How to search and trade commmodities on Kite app ?

  85. Abinash Tripathy says:

    Why Gold 58000 (onwards) Call option is not visible ?

  86. Deepak Navalakha says:

    Sir hindi main bhi aap pure blog dalo ….hame english nahiaati hai

  87. FL9329 says:

    Please active commodity segment in my trading account

  88. Vaka says:

    Hello Zerodha… I think it’s the right time to add more material to this module on option contracts and also BULLDEX futures… Please let me know whether options are introduced for BULLDEX … please reply me … Thank you

  89. Rudra Vignesh says:

    Given gold is a stable commodity, unlike equity stocks, and its value increases steadily over time, is it advisable to do covered calls with Gold or Goldm futures?
    Please discuss the possible scenarios and challenges one might have to experience.

  90. Rudra Vignesh says:

    I understand the risk. My question is, will all the OTM calls expire worthless? And if so, can we hold the contract till expiry?
    Will the low liquidity in the commodities options be a problem? And if so, how and why?

    • Karthik Rangappa says:

      Yes, all OTM will expire worthlessly. Yes, low liquidity is an issue, does not allow you to easily get in and out of a trade.

  91. Anirudh kumar says:

    Please update this chapter. Last update was 3 years back

  92. Arjun says:

    Hi sir,

    I have few questions

    1. I have open position in Silver Dec Future and i shorted 63000CE (Nov) for hedging, My question is why future and Options showing different expiries and as per above article you mentioned few days before futures expiry options will convert to Futures
    2. can you please tell us how expiries will and if there is charges will be applicable , if option is not squred off like in Nifty and bank Nifty (STT), If so how much.
    3. Please make new lesson to understand above concepts which is very consuming and MCX website doesnot have enough information

    • Karthik Rangappa says:

      1) Thats because you seem to have selected two different expiries for two different instruments
      2) Not really, but its best if you can square off the position before expiry
      3) Will try and do that

  93. Ritwik Agrawal says:

    Hello, Please update about gold and silver commodity options. They have started now. The last comment was from 2017, this is 2020.

  94. Jammula Parasharamudu says:

    i-trade-commodity-options-in-zerodha but it shown error massage ;- the commodity MIS / BO / CO orders are blocked for this instrument (try CNC / NRML) or it has been restricted from trading.

  95. Sanjay says:

    Mcx option rate kaha dakh sakta hai

  96. Shantnu says:

    Sir, can you please share some of the sources for commodities supply and demand data.

    • Karthik Rangappa says:

      This depends on the commodity you are looking at. The easiest way to do this to look at the annual report of a company dealing with that commodity. For example, if you are looking at ALuminium (commodity), look at HINDALCO’s annual report for the data.

  97. Pranav says:

    kindly answer my question..
    what is 1 qty means in Crude oil Feb CE option contract ? i mean how much barrels ?? im really confused

  98. Onkar says:

    What risk free rate to be used in black 76 options calculator?

  99. vaibhav says:

    this chapter should be updated

  100. bharani kumar says:

    i am holding CRUDEOIL JUN month option,can i convert it to JULY month

  101. Samiran Ghosh says:

    I hope that everything mentioned in this chapter 3 years ago is still relevant. If not, Mr. karthik should update with all the updated information. Thank you.

  102. vignesh says:

    if i buy call option goldm sep 47200 at rs 96 but at the time of expiry it will converted into futures. what happens to the premium of rs 96 for buying call options?

  103. vignesh says:

    if i buy itm call option goldm 47000 at rs 92. At the time of expiry it will devolved into futures. After conversion into futures what happens to the premium of rs 92 i paid?

  104. vignesh says:

    1. if i buy itm call option goldm 47000 at rs 92. At the time of expiry it will devolved into futures. After conversion into futures what happens to the premium of rs 92 i paid?
    2. during conversion into futures i lost my entire premium or margin only changes?

  105. Sanyam says:

    Which is most liquid gold option contracts, looking to write one to hedge my gold position?

  106. jasmine says:

    Hi Karthik, what happens to my gold ce on 24th november ( expiry date ). If i have bought a call do I have to square of on 24 nov or earlier and if i don’t want to square off how do i carry forward this trade ?

  107. Abhijeet Jadhav says:

    When the options are starting in mcx?

  108. Nijanthan says:

    Please reply to this comment!
    crude options sufficient liquid or illiquid ….is there any problems in order execution?

  109. Rahul says:

    Like sensibull, opstra can you please suggest any website which can be subscribed to get mcx commodities like crude oil option greeks in real time and one can analyze pay off graphs

  110. Ankur Agrawal says:

    Thank you so much Karthik !

    I humble request if you can modify the Commodity options & some other stuff as well which has significantly from the time this blog was written (ig 2017 & now 2022!).

    We are eternally grateful for the learning that flows to us from YOU !

    • Karthik Rangappa says:

      Thanks Ankur. Yes, updating this module has been on cards for a while now. Will try and do that sometime soon 🙂

  111. Varsha shende says:

    Is equity and commodity, fund balance is same for both

  112. Mateesh says:

    Is the problem of devolvement of margin and higher margin requirements for commodity options only applicable to options that are held till expiry, right? If I want to speculate on options and square-off my positions well before they expire, then is there anything different from equity options? Thanks

    • Karthik Rangappa says:

      I’m assuming you will quickly speculate much before expiry. In that case, physical delivery margins won’t be applicable, Mateesh.

  113. Gaurav shinde says:

    Is there any value decaying in the commodity options like equity option??

  114. Pradeep says:

    Answer to: Like sensibull, opstra can you please suggest any website which can be subscribed to get mcx commodities like crude oil option greeks in real time and one can analyze pay off graphs

    Commodity market is still overlooked by many retail traders, thanks to the hype over Nifty/Banknifty. Hence, it may not be worth the effort for platforms like Sensibull to integrate commodity options into its system, plus that would require exchange approval and support. Apart from Crude oil, other options still have a long way in terms of liquidity. But it would be good to have something like that for commodities too:)

    • Karthik Rangappa says:

      Not sure about MCX. Maybe check with Sensibull itself if they have or if not any plans to have MCX soon 🙂

  115. Pradeep says:

    Answer to: Sir, can you please share some of the sources for commodities supply and demand data

    There is no supply/demand data as such, but there are inventory levels and production level data available. For example, for Crude oil, there is the weekly inventory data released by EIA. Same for Natural Gas.

    That said, please do note that it does not make sense to follow inventory data to assist with speculative trades (such as intraday). One can definitely look at these data points but understand that the commodity market is huge with big players having positions, charts can tell a lot about what may happen. Technical Analysis is the way to go!

  116. Pradeep says:

    I did speak with Sensibull team, no plans for now. Abid had a funny take on it.

  117. Manikanta says:

    Is liquidity an issue with commodity options and which one people choose the most ? Commodity options or futures ?

  118. Amal says:

    Hi Karthik,

    I hope you’re doing well. I have a question regarding the use of the option delta calculated from the Black 76 model as a proxy for probability. Recently, I’ve been using the mcx option Greek calculator to calculate Greeks for various options. For this calculation, I’ve set the risk-free rate to be the yield on 91-day Treasury bills, and the annualized volatility is derived from the 20-day VAA option given on the option calculator.

    Now, here’s where I’m facing some confusion. When I run this calculation, I notice that for PUT options, the delta for the strike prices just three steps above the ATM strike is approximately -0.30. However, if I apply the same expiry to Nifty options, the -0.30 delta PUT option is four strikes above the ATM option.

    Upon analyzing this further, I suspect that crude oil is more volatile when compared to Nifty, leading to the disparity in the positions of the -0.30 delta PUT options relative to the ATM option. This leads me to question whether the probability calculation based on delta would be accurate in such scenarios.

    I would greatly appreciate any insights or experiences any of you might have in using option delta as a proxy for probability, especially in situations with varying levels of volatility. Do you think it’s still a reliable approach, or are there any other factors I should consider for a more accurate estimation?

    • Karthik Rangappa says:

      Amal, delta as a proxy for the probability should be used as an intuitive basis and not from a pure mathematical basis. For instance, the delta of -0.3 or 0.4 only tells me that upon expiry, the probability of this strike transitioning into an ITM strike, is only 30 or 40%. Based on this, I’ll figure if I should buy the option or not. This information is particularly handy when the expiry is very close by.

  119. Shaunak says:

    Hey, is there any particular reason to why Zerodha doesn’t allow trading in NCDEX? Is it because of liquidity? Talking about liquiditiy, I have been wondering why a country like India with a big agricultural system doesn’t have a vibrant commodities market compared to other countries?

    • Karthik Rangappa says:

      Yeah, Shaunka, liquidity issues. That’s an interesting line of thought, will probably dig up some answers. But one answer is that the native commodities market (channa dal, pepper, wheat) are all shallow and do not have liquidity. Where as international commodities like Gold and Crude have liquidity and better price discoverability. So in a sense, liquidity chases liquidity.

  120. Shaunak says:

    Does there exist a spot market for commodities? Where can I access the spot market data?

  121. Shaunak says:

    True that, liquidity chases liquidity. Hopefully we develop our commodities market tho in the coming years


    Hi sir sir when will the trading in agri commodities via ncdex start in zerodha platform , also are there options contract in crude & are they liquid , thanks .

  123. Praveen Sharma says:


    Great Insight. However, I feel now there is a need to update this chapter. Please do the needful.

  124. anand says:

    can u add crudeoil option chain ….

  125. Kiruthika says:


  126. Rohan A says:

    where to see option chain & indices of crude oil

  127. Shibu says:

    Can we do short strangle in Natural gas with less amount of money same like in nifty and bank nifty?

Post a comment