European-style option

This one is not written up yet

The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.

Written up from the same chapter

• Average Daily Trading VolumeThe liquidity test a commodity future must pass before its price may carry weight in a tradeable commodity index — Rs 75 crore a day for agri, Rs 500 crore for non-agri.
• BackwardationA market in which the futures price sits below the spot price — the cost of carry says futures should be dearer, and something is overriding it.
• ContangoA market in which the futures price sits above the spot price, normally because the futures buyer is paying for the cost of carrying the commodity through to delivery.
• Contrary instructionAn instruction from the holder of an in-the-money option telling the exchange **not** to exercise it — the only way to stop an ITM contract being exercised automatically at expiry.
• Convenience yieldThe rupee benefit of physically holding a commodity rather than holding a futures contract on it — the term that lets a futures price fall below spot plus carry.
• Daily Price LimitThe band around the previous close within which a contract may trade during a day — a circuit filter that caps volatility, imposes a cooling-off pause, and can halt the contract for the session.