what is the difference between trading in Options and Futures?
An option is the right but not the obligation to do something. If you buy a call you have the right to buy the futures contract later at a fixed price if it makes sense to do so. Otherwise you can legally walk away and be out only what you paid for the option in the first place. If you bought the future directly, and it went up, great. But if it went down, you would be responsible for the loss.
A futures contract obligates the holder while an options contract does not. If you have an option to buy 1000 lbs. of frozen concentrated orange juice at $0.22 per unit on a certain day, when that day arrives you may either purchase the FCOJ or not. If you have a future contract, however, with the same terms, then when the day comes, you must buy the FCOJ.
To put it another way, a future is an option that *must* be exercised and an option is a future that *may* or *may not* be exercised.
The biggest difference in trading them is risk. Options carry much lower risk for the investor than futures. As a result, however, you can expect to pay a premium on the commodity you’re seeking to buy. That same FCOJ that went for $0.22 on a future may go for $0.25 or higher on an option since the grower of the FCOJ is still holding on to most of the risk.
References :
Looking good, Billy Ray! Feeling good, Lewis!
Losses:
- options limit your loss to 100%
- with futures you can actually loose more than you invest.
Contract:
- The option contract size is 100
- The future contact size is 1000
- Exercise is optional with options
- Futures are mandetory.
Value:
- an option contract has value
- a future contract has no value.
References :
If you hold an Option to it’s date…. you have an obligation
If you hold an Option to its date….. you have the choice (option) to use it.
References :
An option is the right but not the obligation to do something. If you buy a call you have the right to buy the futures contract later at a fixed price if it makes sense to do so. Otherwise you can legally walk away and be out only what you paid for the option in the first place. If you bought the future directly, and it went up, great. But if it went down, you would be responsible for the loss.
References :
An option contract gives you the right to sell or buy an asset at a predefined date, a right which you may or may not exercise. A future contract obligates you to buy or sell an asset at a future date.
References :
According to the source article
future – contract which is governed by a pre-determined price for selling and buying at a future period. options – the right to sell or purchase of underlying assets without any obligation.
References :
http://www.differencebetween.net/business/difference-between-futures-and-options/
Future is an obligation, Options just gives you the option.
Futures are really a pain. It is much easier to add options trading (puts and calls) to your online brokerage account.
References :
http://learningly.com/what-is-options-trading/