Question

Explain the fundamental differences between futures and futures options?

Answer 1

Futures is a standardized agreement wherein the buyer and the seller agree to buy or sell a particular asset at a fixed price at a specified date in the future. These can be used for hedging and trade speculation.

Future Option gives the buyer a right to sell or buy a futures contract at a fixed price and at a specific date in future.

Futures Option gives a right to the buyer exercise his option, i.e, execute the trade of futures contract on the expiration date, though there is no legal obligation to do so. On the other hand, Futures contract puts a legal obligation on both the buyer and the seller to execute the contract at the fixed price, upon expiration of time period.