China launches second exchange-traded agricultural commodity option

Zhengzhou Commodity Exchange launched white sugar options on Wednesday to enhance risk management tools of agro-related enterprises, following soybean meal options, the first agricultural commodity options in China.

The launch is in response to the No 1 Document 2016 issued by the central government which stated that it is necessary to "create agricultural futures varieties and carry out agricultural options pilot".

By 11:25 am, a total of 35,866 units of trading had been conducted, according to the exchange. Each trading unit is 1 lot (10 tons) of sugar futures contract and the minimum change in the price is 0.5 yuan per ton; the exercise way is American option. In terms of differences, the price limit range of sugar options is the same as that of sugar futures contract, namely 4 percent. In addition, the sugar options have taken market maker system. Ten market makers, including Zhejiang Nanhua Capital Management Co Ltd, were announced last Wednesday.

The term "option" refers to the right of the buyer to buy or sell a certain commodity or financial instrument in certain quantity in accordance with the predetermined price within the agreed time limit. Option is a mature basic risk management tool in international derivatives market and constitutes a complete risk management tool system in commodity market together with futures, forwards and swaps.