What are futures options. Options on futures are similar to options on stocks, but with one major exception Futures are the underlying instrument off which the options are priced (unlike equity options which have the stock as its underlying). As a function of being priced off of futures, it's important to be aware of the differences between futures options.

What are futures options

Futures vs Options - Which is Best and Why?

What are futures options. A futures contract allows you to buy or sell an underlying stock or index at a preset price for delivery on a future date. Options are of two types -- call and put.

What are futures options


Derivatives are instruments that derive their value from an underlying security like a share, debt instrument, currency or commodity. Futures and options are the two type of derivatives commonly traded. Investing in futures and options with Kotak Securities can help make your financial infrastructure secure.

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Such an agreement works for those who do not have the money to buy the contract now but can bring it in at a certain date.

These contracts are mostly used for arbitrage by traders. It means traders buy a stock at a low price in the cash market and sell it at a higher price in the futures market or vice versa. The idea is to play on the price difference between two markets for the same stock. In case of futures contracts, the obligation is on both the buyer and the seller to execute the contract at a certain date.

Futures contracts are special types of forward contracts. They are standardized exchange-traded contracts like futures of the Nifty index. An Option gives the buyer the right but not the obligation. As a buyer, you may choose to let the option to buy call or put option lapse.

The seller has an obligation to comply with the contract. In the case of a futures contract, there is an obligation on the part of both the buyer and the seller. Options are of two types - Calls and Puts options: If the buyer of options chooses to exercise the option to buy, the counter-party seller must comply.

A futures contract, on the other hand, is binding on both counter-parties as both parties have to settle on or before the expiry date. Please note that all option contract available on NSE can be exercised on expiry date only.

If you are a buyer in the futures market, there is no limit on the profit that you make. At the same time, there is no limit on the loss that you make. A futures contract carries unlimited profit and loss potential whereas the buyer of a Call or Put Option's loss is limited, but the profit potential is unlimited. Purchasing a futures contract requires an up front margin and normally involves a larger outflow of cash than in the case of Options, which require only the payment of premium.

Futures are a favourite with speculators and arbitrageurs whereas Options are widely used by hedgers. Presently, at NSE, futures and options are traded on the Index and single stocks. You have now studied all the important parts of the derivatives market — what are derivatives contracts, different types, futures and options, call and put contracts, and how to trade these. Existing customers can send in their grievances to service.

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Infinity IT Park, Bldg. Skip to main content. Account Login Not Logged In. About Us Why Join Us? Difference Between Futures and Options Derivatives are instruments that derive their value from an underlying security like a share, debt instrument, currency or commodity. Futures A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

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