Options vs. Futures: What’s the Difference?
By 5 Circles Pvt Ltd | Updated August 03, 2024 Reviewed by Vaishnavi Dixit In the world of financial derivatives, options and futures stand out as two popular instruments that investors use to speculate on market price movements or hedge against potential risks. Although they share some similarities, options and futures have distinct characteristics, rules, and risks. Understanding these differences is crucial for investors to make informed decisions and optimize their trading strategies. What are Options? Options are financial derivatives based on the value of an underlying asset, such as a stock, index, or commodity. An options contract gives the investor the right, but not the obligation, to buy or sell the underlying asset at a predetermined price (strike price) within a specific time frame. Options come in two primary types: call options and put options. Call Options : Provide the right to buy the underlying asset at the strike price before the contract expires. Put Options : Prov...