Question

Discuss the difference between hedging with futures and options

Answer 1

The difference between futures and options is that futures give the obligation to buy or sell at a future date but options give a right and not an obligation to do so. Hence, there is no downside with option hedging but there is a downside in case of hedging with futures. But, another difference between hedging through options and futures is that hedging through options require upfront payment which is also called option premium but in futures there is no upfront payment