Futures and Options

What are future and options?

Futures:

A future is an obligation to buy or sell a given quantity of a particular asset, at a specified future date, at a pre-agreed price.

Futures are traded on exchanges.

The futures price should be equal to the cost of financing the purchase and the cost of storage until expiry.

Options:
An option gives the owner the right to buy or sell a given quantity of a particular asset, before a specified date, at a pre-agreed price.

The right to buy is a Call Option

The right to sell is a Put Option

American options can be exercised at any time, while European options can only be exercised at maturity.

Options are traded over the counter or on exchanges.

The options price depends on the expiry time, interest rates,the volatilty of the underlying instrument and the price of the underlying instrument.