How Can I Trade Commodity Options in Angel One?

Commodity options trading offers investors a unique opportunity to participate in the commodity markets with increased flexibility and potential for higher returns. Angel One, a renowned brokerage firm, provides a user-friendly platform for traders to delve into the exciting world of commodity options trading.

How to Start Commodity Trading?

Step 1: Gain Knowledge of Commodity Options

Before diving into trading, it’s essential to understand the dynamics of commodity options. Learn how options work, the various strategies involved, and the risk management techniques. 

Step 2: Choose a Reliable Broker

Select a good broker who offers an excellent trading platform. Angel One offers a very user-friendly and intuitive platform. You may also practice using the demo account provided by Angel One to gain confidence before executing real trades.

Step 3: Open an Account 

The first step is to open a trading account with Angel One. Visit their website or contact their customer support to initiate the account opening process. You will need to provide some essential details and submit the necessary documents to complete the registration.

Step 3: Complete the KYC Process

As per regulatory requirements, Angel One needs to comply with the “Know Your Customer” (KYC) guidelines. You will be required to submit identification and address proof documents. Once your KYC is approved, you can proceed to the next step.

Step 4: Fund Your Account

After your account is activated, fund it with the desired amount to start trading. Angel One offers various payment options, including online transfers and cheques, to make funding convenient for you.

Step 5: Place Commodity Options Trades

Once you are comfortable with the trading platform, you can start placing commodity options trades. Select the commodity you wish to trade, choose the appropriate options contract, and specify your trade parameters, including the strike price and expiration date.

Step 6: Monitor Your Trades

After executing a trade, monitoring its progress is essential. Monitor market movements and assess whether your trade is moving in the desired direction. Angel One’s platform provides real-time market updates and alerts to help you stay informed.

Step 8: Implement Risk Management

Commodity options trading involves risk, and it’s crucial to implement risk management strategies to protect your capital. Set stop-loss levels and avoid over-leveraging to prevent substantial losses.

Methods to Invest in Commodity Markets:

Commodity futures: Commodity futures are contracts that are bought and sold on exchanges based on the anticipated future price of commodities. For this, a brokerage account is necessary.

Physical trade: Buying gold and silver as jewellery, coins, or bars is one way to engage in this type of trading. This strategy works best for really valuable commodities alone.

Commodity Stocks: Another option for investing is to purchase stocks from businesses that deal with commodities, such as oil refineries or farms. Compared to actively wagering on commodities prices, this may be less hazardous.

Mutual funds, ETFs for commodities, and ETNs: Investment choices in the commodities sector also include commodity-based mutual funds, exchange-traded notes (ETNs), and exchange-traded funds (ETFs).

Commodity pools and managed futures  Both are essentially private funds that concentrate on commodity investing; traders must be vetted before they can make an investment. These funds are not accessible to the general public. There may be more administration expenses in addition to possible rewards.

It’s crucial to keep in mind that once the futures contract is in place, the price and date cannot be changed.

Advantages of Commodity Options

• Commodity option contract buyers do not have to maintain mark-to-market margins because they pay a premium for these contracts.
• In commodity trades, buying put options allows you to take a short position in the futures while minimizing risk. It is possible to decide not to exercise the right to sell if the current price of the contracts is higher than the strike price. Due to the fact that futures require compulsory delivery, the stakes are higher.
• Compared with futures, options offer higher returns and better risk mitigation since the premium is only paid if the rights to buy or sell the underlying asset at pre-set prices are not exercised.
• One can hedge one’s pricing risk using options in a largely volatile commodity derivatives market by taking advantage of the price volatility.

FAQs on How Can I Trade Commodity Options in Angel One

Q1. What are commodity options?

A commodity option is a financial contract whose underlying asset is a commodity. Similar to stock options, it gives the owner the right to buy or sell the underlying goods at a future price.

Q2. How do you trade in commodity options?

To trade commodity options, you need a separate commodity trading account and a commodity Demat account, both of which you can open online with a broker.

Q3. Is commodity options trading allowed in India?

Yes. In 2017, SEBI allowed commodity options trading.

Q4. Are commodities high-risk?

Commodity trading is no different from other types of investments when it comes to risk. They are risky due to price volatility. Therefore, investors must choose assets based on their risk appetites. 

Q5. Are commodities riskier than stocks?

Investing in commodities is not riskier than investing in stocks, but since trading in commodities requires more experience, new investors might struggle to understand it at first.

Q6. What are the examples of commodities? 

Agriculture products such as wheat and cattle, energy products such as oil and natural gas, and metals such as gold, silver, and aluminum are examples of commodities.

Q7. Are there options on commodities?

Yes. MCX and NCDEX are the two national exchanges that offer commodity options.