An individual client can hold up to 1.2 crore MMBtu across all natural gas options on MCX, or 5% of the market-wide open position, whichever figure is higher. The MCX leaflet on natural gas options sets out this limit, and it decides how large the position of any one participant can become.
For investors reading the natural gas option chain, this means the open interest shown against each strike is made up of positions that are held within such caps.
What the chain is built on
The options listed in the chain are European-style calls and puts, written on the monthly natural gas futures traded on MCX. European style means that a buyer or seller can exercise the contract only at expiry, and not on any day before it.
Alongside this, the options expire two business days before the underlying futures expire, as per the MCX leaflet. The option contract therefore concludes first, and the futures contract continues for a short period afterwards.
Who can hold how much
The cap for a clearing member is set at a much higher level than the cap for an individual client. A clearing member is the firm that settles trades on behalf of its clients, and its collective limit for all those clients is 12 crore MMBtu, or 20% of market-wide open position, whichever is higher.
This limit is applied across natural gas options combined, so the positions of every client of that member are counted together. The individual limit mentioned earlier applies separately to each client.
The details of that series are best checked against the latest exchange circulars before any figure is relied on.
