Futures Contracts are agreements for trading an underlying asset on a future date at a pre-determined price. These are standardized contracts traded on an exchange allowing investors to buy and sell them.
Options are financial derivatives that give buyers the right, but not obligation, to buy or sell an underlying asset at an agreed upon price during a certain period of time.
?Call options and put options form the basis for a wide range of option strategies designed for hedging, protection, or speculation.
Differences
1⃣ Buyer’s Obligation
FUTURES: Full obligation to execute the contract
OPTIONS: There is no obligation.
2⃣ Seller’s Obligation
FUTURES: Complete obligation
OPTIONS: If the buyer chooses then the seller will have to abide by it..
3⃣ Time Value of Money
FUTURES: Not Considered
OPTIONS: Relied heavily upon
Types of options based on Underlying Securities
When people use the term options they are generally referring to stock options, where the underlying asset is shares in a publically listed company. While these are certainly very common, there are also a number of other types where the underlying security is something else. We have listed the most common of these below with a brief description.
Stock Options: The underlying asset for these contracts is shares in a specific publically listed company.
Index Options: These are very similar to stock options, but rather than the underlying security being stocks in a specific company it is an index – such as the S&P 500.
Forex/Currency Options: Contracts of this type grant the owner the right to buy or sell a specific currency at an agreed exchange rate.
Futures Options: The underlying security for this type is a specified futures contract. A futures option essentially gives the owner the right to enter into that specified futures contract.
Commodity Options: The underlying asset for a contract of this type can be either a physical commodity or a commodity futures contract.
Basket Options: A basket contract is based on the underlying asset of a group of securities which could be made up stocks, currencies, commodities or other financial instruments
Strike Price
A strike price is the fixed price at which an option contract can be exercised & the most important elements of options pricing.
At the expiration date, the difference between the stock’s market price and the option's strike price represents the amount of profit gained by exercising the option.Two derivative products that use strike price are call and put options.
?Call Strike Price
A call option is an agreement where a buyer has the right but not obligation to buy 100 shares of stock from a seller before the option expires at a set price.
?Put Option Strike Price
A put option is just the opposite of a call option. With a put option, the buyer has the right but not obligation to sell 100 shares of stock at the strike price before expiration.
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