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Difference between Futures and Options Trading

October 13th 2010 11:41
Difference between Futures and Options Trading? Options are contracts that allow the holder the right, but not the obligation, to purchase or sell a specified amount of an underlying commodity at a specified price during a specified period of time. Futures contracts are agreements to buy or sell a specified amount of a commodity at a specified date in the future for a predetermined price.

Options contracts reference the underlying asset, contract size, strike price and expiration date. Futures contracts reference the underlying asset, contract size and delivery arrangements, and contain price quotes.


At expiration, an options contracted is either executed or expires. The contract will be executed if the holder is "in the money." For a call option, this means that the market price of the underlying asset is above the strike price. Futures are delivered at expiration. Typically, the contract is previously offset by the purchase of a contrasting position.

Large futures exchanges, such as the Chicago Mercantile Exchange and the New York Mercantile Exchange, act as a clearinghouse. large option exchanges, such as the Chicago Board Options Exchange and the Philadelphia Stock Exchange, match buyers and sellers of options.
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