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Hint of five-year options

Mumbai, Dec. 17: The Securities and Exchange Board of India (Sebi) today proposed to introduce long-term exchange traded equity options that could have expiration dates of up to five years against the current norm of three months.

Last month, the market regulator had approved the launch of new derivative products based on the interim recommendations made by the Sebi committee on derivatives headed by M. Rammohan Rao.

At that time, Sebi proposed to introduce mini-contracts on equity indices and options with longer tenure along with five other initiatives.

An option is a type of derivatives contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period.

The regulator has now floated a paper on the subject to elicit comments from the public.

The paper said that currently many of the investors who had a long-term view on the market did not find a direct options product with which this could be achieved.

“Long-term options are proposed to be made available with expiration dates up to five years. These long-term options could be purchased not only for individual stocks, but also for equity indexes,” the paper said.

Sebi said another advantage of such long-term options was that it offered a good alternative to a long-term trader to gain exposure for a prolonged period in a given security without having to roll several short-term contracts.

At present, the minimum contract size of derivative contracts in the domestic market is Rs 2 lakh.

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