Options -vs- Futures
Options differ quite a bit from futures. When carefully used, options can be very important, especially when it comes preserving the value of an existing fixed-income portfolio. Many people believe options are "insurance" against adverse price movements while offering the flexibility to benefit from possible favorable price movements at the same time.You could use options on futures based on the structure of an option contract. When you buy an option it gives you the right, not the obligation, to buy or sell a specific amount of a specific commodity at a specific price, within a specific period of time. By comparison, a futures contract requires a buyer or seller to perform under the terms of the contract if an open position is not offset before expiration. Second, the decision to exercise the option is entirely that of the buyer. Thirdly, the purchaser of the option can lose no more than the initial amount of money invested. This is called a premium. However, that is not the case for the buyer of a futures contract. Finally, an option buyer is never subject to margin calls. This enables the purchaser to maintain a market position, despite any adverse moves without putting up additional funds.
