Options on Futures Contracts
There are two basic types of options on futures contracts: "calls" and "puts." A call option on futures contracts gives the buyer the opportunity to purchase a specific futures contract (i.e. a wheat contract to be delivered in October 2005) at a specified price, during a specific period of time.A put option gives the buyer the opportunity to sell a specific futures contract at a specific price during a specified period of time. The price for which the futures contract can be brought (in the case of a call option) or sold (in the case of a put option) under the terms of the options trading contract is referred to as the option's strike price or exercise price. The date an option expires, the date after which it can no longer be exercised, is the option's expiration date. The price of a specific option, that is, the amount of money paid by the buyer of an option and received by the seller of any option, is the option premium.
