(Yicai Global) Jan. 28 -- The three commodity exchanges on the Chinese mainland added three new derivatives options today to double the number they offer to investors.
The Shanghai Futures, Zhengzhou Commodity and Dalian Commodity Exchanges added options for corn, cotton and natural rubber, taking the tally of commodity derivatives offered on the mainland to six, Shanghai Securities News reported. The natural rubber option is the world's first of its kind.
Commodity options are contracts that give holders the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date. It is widely accepted that listed options facilitate the formation of a reasonable pricing mechanism and offer effective and flexible risk management tools for upstream and downstream firms.
Luo Xufeng, general manager of Nanhua Futures, believes there will be more commodity options coming to China, allowing futures to serve the real economy with a broader range of tools and with greater force. The new options back up what the sector has already done to help the real economy, such as over-the-counter derivatives and insurance-futures combinations, he added, saying this is an important part of opening up China's financial markets and attracting foreign investors.
The rubber options will meet demand for diversified, precise and personalized risk management, enhance the influence of China's rubber futures market and help major rubber producing provinces like Hainan and Yunnan overcome poverty, said Jiang Yan, chairman of the Shanghai exchange.
The corn options will hedge against risk of price fluctuations but also integrate with corn futures to form a protective hedging strategy that can meet firms' varying demands, added the Dalian exchange. Investors can cut the premiums for hedging by buying and selling put or call options at the same time, to obtain insurance without the premiums, it added.
Editor: James Boynton