Commodity futures traders making cautious bets through ‘spread contract’

Amid fears of poor monsoon and depletion of old stocks, a few wealthy investors have begun taking cautious bets in commodity futures like castorseed, jeera and coriander through a relatively new product to benefit from price volatility on farm bourse NCDEX.

The margin is just one-fourth of the contract size. For instance, the margin in castor is Rs 2.04 lakh. The spread between June and July castor seed was around Rs 140, intraday Friday.IIFL believes that this could widen to Rs 175, a. 35 difference in a week.` The contract size in castor is 10 tonnes. If the bet plays out and castor spread jumps, it would translate to a return of Rs 3,500 on Rs 2.04 lakh, or 1.7 per cent in a week. However, clients have been asked to trade with a stop loss at Rs 127. In jeera futures, the spread is predicted by IIFL to widen from Rs 260 intraday Friday to Rs 340 by next Thursday.

Since the contract size is three tonnes, if the trade plays out it would translate into a gain of Rs 2,400 on a margin to Rs 2.6 lakh or a 0.9 per cent return in a week. The stop loss is at Rs 235.

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Posted in: Indian Market Tips