A futures contract is the obligation to sell or buy an asset at a later date at an agreed price.A futures contract requires a buyer to purchase shares, and a seller to sell them, on a specific future date unless the holder's position is closed before the expiration date.

Futures are most understandable when considered in terms of commodities such as corn or oil. Futures contracts are a true hedge investment. A farmer might want to lock in an acceptable price up front in case market prices fall before the crop can be delivered. The buyer wants to lock in a price up front, too, in case prices soar by the time the crop is delivered.

Assume two traders agree to a $50 per barrel price on an oil futures contract. If the price of oil moves up to $55, the buyer of the contract is making $5 per barrel. The seller, on the other hand, is losing out on a better deal.


Options and futures are both financial products that investors use to make money or to hedge current investments. Both are agreements to buy an investment at a specific price by a specific date.

An option gives an investor the right, but not the obligation, to buy (or sell) shares at a specific price at any time, as long as the contract is in effect.

There are only two kinds of options: call options and put options. A call option is an offer to buy a stock at a specific price, called a strike price, before the agreement expires. A put option is an offer to sell a stock at a specific price.

In either case, options are a derivative form of investment. They are offers to buy or offers to sell shares, but don't represent actual ownership of the underlying investments until the agreement is finalized.

Call Option and Put Option:-

The risk to the buyer of a call option is limited to the premium paid up front. This premium rises and falls throughout the life of the contract. It is based on a number of factors, including how far the strike price is from the current underlying security's price as well as how much time remains on the contract. This premium is paid to the investor who opened the put option, also called the option writer.

Either the option buyer or the option writer can close their positions at any time by buying a call option, which brings them back to flat. The profit or loss is the difference between the premium received and the cost to buy back the option or get out of the trade.

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