Question

1. Contrast an option with a forward or futures contract. Could either or both of these contracts have negative value to you?

Answer 1

Difference between options and futures and forward contract as follows-

1.Options give the holder the right but not the obligation while forward contracts are binding agreements and future contracts are standardized forward agreements.

2.One must pay money to buy an option because having the choice to exercise the option is a privilege while entering a forward and future contract one need to pay nothing at the time the agreement.

3.Options contract relatively needs the lowest payout among all these three.

When the forward on the future contracts trade high in relation to Spot value in the market in such scenario the spot price will be trading at a discount to the futures price and then the forward contract and future contract are said to be trading negatively.