Currently, the only instrument available in the commodity derivatives market is futures on individual commodities.
Analysts say that with Sebi allowing options trading in derivatives will lead to higher trading volumes in the commodity contracts and which will be beneficial for the MCX as it will be an additional source of revenue generation for the MCX.
Describing the decision on options trading as a "very big step towards further deepening the commodities derivatives market", Sebi Chairman Ajay Tyagi said it would be implemented quickly.
These decisions were taken at the Sebi's board meeting, first one to be chaired by Mr Tyagi, here.
"I can only say it will be done quickly... I don't want to give timeframe but this certainly is priority for commodity derivatives market and high priority for us," Mr Tyagi said.
Detailed guidelines would be issued for trading in 'option' on commodity derivatives exchanges.
Meanwhile, brokerages have welcomed the move of allowing options trading in the derivative segment. Amar Singh, head of advisory at Angel Broking told PTI, "It is a great and positive step in the right direction, which would go a long way in enhancing the quality of the commodity markets."
"World over, commodity options are very much used by hedgers, to protect themselves against volatility and this step will help Indian hedgers as well, apart from offering various strategies for hedgers, investors and traders alike."
Futures and options are derivative instruments traded on the stock exchanges. The introduction of options will give investors more choices to market participants to hedge their positions in the derivatives markets.
A futures contract is a contract between two parties to buy or sell an asset at a certain time in the future at a certain price.
In futures contracts, the obligation is on both the buyer and the seller to execute the contract at a certain date. An options contract gives the buyer the right but not the obligation.
Meanwhile, shares of MCX gave up initial gains in the noon deals on account of profit-taking. As of 1:08 pm, MCX shares were trading 0.64 per cent lower at Rs 1,209, underperforming the Nifty which was down 0.12 per cent.