The Johannesburg Stock Exchange (JSE) has seen 800 platinum option contracts traded on the Safex commodity derivative's global market late last week, the first time that the JSE has seen this trading strategy used by market participants.
Chris Sturgess, general manager of the commodities division at the JSE, says: “To date the trade has been solely in futures, but I'm pleased to see the first interest in using options by a hedge fund. Options are versatile instruments that in their simplest form enable traders to acquire a type of insurance. Buyers pay a premium to reduce their risk and have access to upside potential. This is a trend we are optimistic will increase.”
To date, trade in platinum futures has been increasing steadily with just over 72,000 ounces traded last year to the value of R923 million. Open interest is at 11,400 ounces and growing. One standardised contract represents 10 ounces of platinum with the contract traded and cash settled in rand off the international New York Mercantile Exchange market.
Investors with an appetite for precious metals were first afforded the opportunity to invest in platinum as a commodity listed on Safex's commodity derivatives market in October 2010, without contravening any mineral or exchange control laws. This was due to an extension of a licensing agreement that the JSE holds with the Chicago Mercantile Exchange Group (CME), the world's largest derivatives market.
In addition to platinum, clients registered on the Safex derivative markets can get exposure to the international gold, copper, silver and West Texas Intermediate crude oil markets.
The JSE first collaborated with the CME Group in 2009, to introduce rand cash-settled commodity derivatives referencing their corn market as benchmark US dollar prices. - I-Net Bridge