1. An option gives the buyer the right, but not the obligation, to buy (or sell) a certain asset at a specific price at any time during the life of the contract.
2. A future is a right and an obligation to buy or sell an underlying stock (or other asset) at a predetermined price and deliverable at a predetermined time.
3. Execution of contract:
FUTURES:
On the agreed date.
OPTIONS:
Anytime before the expiry of the agreed date.
4. Futures require a higher margin of payment as compared to options.
5. Futures are preferred by speculators and arbitrageurs.
Options are preferred by hedger.
6. Level of Risk:
Futures:
High
Options:
Ristricted to the amount of premium paid.
7. Advance payment:
Fututes:
No advance payment
Options:
Paid in the form of premiums.
8. Futures are unlimited profit, potential loss instruments and options contracts are unlimited profit, limited loss instruments.
9 Futures may be great for index and commodities trading, but options are the preferred securities for equities.
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