It’s impossible to understand how commodity options work without knowing what commodity option contracts are.

An option gives you the right to buy or sell an asset at a fixed price (known as a strike price), but you’re not under any obligation to take up this opportunity. Literally, you have the option of whether to buy or sell — but only for a certain period of time.

The point at which you can exercise your contract depends on which type of options contract you take out:

• American-style options. Allow you to exercise your right to buy or sell at any point before the expiration date.
• European-style options. Only allow you to exercise your right to buy or sell on the precise expiration date.

European-style options have found favor in India, and all option contracts in the contract expire on the same day: The final Thursday of the month.