Futures and Options
Futures and options are both types of derivative contracts, meaning their value is derived from an underlying asset, which could be stocks, bonds, commodities, interest rates, or currencies. - Futures: In a futures contract, both the buyer and the seller agree to buy or sell the underlying asset at a pre-determined price on a specified future date. It’s an obligation for both parties to execute the contract at expiration, regardless of market conditions. - Options: An options contract gives the buyer the right, but not the obligation, to buy (call) or sell (put) the underlying asset at a predetermined price on or before a certain date. The seller, however, is obligated to fulfill the contract if the buyer exercises the option. In essence, futures are binding, whereas options provide flexibility to the buyer.
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