As part of plans to diversify and expand financing methods for agricultural products on the Iran Mercantile Exchange, the bourse on Sunday launched the options contracts for saffron.
Options trading will only be for 'Negin Saffron' which is considered the highest-quality of Iranian saffron and comes after IME launched saffron futures contracts and certificates of deposits for saffron earlier during the calendar year (ends March 20).
At a press conference on the occasion of launching the contracts for the first time, Hamed Soltaninejad, IME's managing director said since the launch of the mercantile exchange in 2007, efforts have been made to enhance trade in agricultural products.
The efforts include launch of Exchange-Traded Commodities for saffron and other agro products. Soltaninejad said if and when the government meaningfully cuts subsidies it gives to the huge agriculture sector, the IME would play a bigger and more effective role in selling agro products.
The official told reporters the IME will launch an international ring in the next fiscal year in the Persian Gulf island of Kish for foreign exchange trade in saffron.
IME experts said during Sunday's ceremony that the aim of launching the saffron options contracts is to support the production of the expensive spice.
Iran is the main producer of saffron in the world. It is often reported in the local press and by observers that saffron farmers benefit the least from what they produce with a lot of hard and tedious work.
From the beginning of the year last March, 66 tons of saffron was traded in the physical ring of the IME and 27 tons were traded in the form of certificates of deposit– one-third of the total annual production of the spice.
The launch of new instrument on the mercantile exchange means less risk for farmers and less need for huge working capital. It will also boost transparency and the ease of turning assets into liquidity.
From the beginning of the year last March, 66 tons of saffron was traded in the physical ring of the IME and 27 tons were traded in the form of certificates of deposit
Given the relative complexity of options trading, the IME has also embarked on an educational campaign among farmers to raise awareness about the benefits of the instrument, especially in Khorasan region which is Iran’s saffron hub.
Options are a type of derivative security. An option is a derivative because its price is intrinsically linked to the price of something else. If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date.
A call option gives the holder the right to buy stock, and a put option gives the holder the right to sell stock.
IME Performance
As Soltaninejad said, IME trading was worth 1,524 trillion rials ($11.7 billion) during the current year, which accounts for 41% of the total trading value of the country's capital market.
During the eleven months to February 19, industrial and mineral commodities had 36.6% (283 trillion rials) share of trade in the IME, followed by petrochemicals (34.5%), oil products (34.5%) and agro products.
The share of spot contracts was 62% at 447 trillion rials and salaf contracts 38% (296 trillion rials).
In the physical market 62% of the financing went to industrial and mineral commodities, 30.96% to petrochemicals and 6.65% to oil products.
For salaf trading, industrial and mineral commodities again had the biggest share at 61.7%, petrochemicals 30.96% and oil products 6.65%.
IME trading registered 60% increase in value during the 11 months of the current year that ends on March 20. The value of its financial market saw a whopping 626% rise during the same period while trading on the physical market was up 73%.
