Wednesday 29 October 2008

Options versus Futures

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

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