Differences.
The purchaser of a futures contract is obligated to buy the underlying asset at the specified price (and the seller of a futures contract is obligated to sell).
The owner of a call option is not obligated to buy unless he wishes to do so; he has the right, but not the obligation.
The buyer of an option has a limited downside, but the buyer of a futures contract doesn't.
Similarities.
Options and futures contracts also share some common features. Both have standardised features that allow them to be traded quickly and "cheaply" on organized exchanges.
Ref: Make Your Money work for you, by Keon Chee & Ben Fok
Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Wednesday 29 October 2008
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