The connection between option trading and futures trading
First of all, both are transactions characterized by buying and selling forward standardized contracts;
Secondly, in the price relationship, the futures market price has an influence on the final price and premium of the option trading contract.
Generally speaking, the final price of option trading is based on the delivery price of forward transactions of similar commodities determined in futures contracts, and the difference between them is an important basis for determining the premium;
Third, futures trading is the basis of option trading, and the content of trading is generally the right to buy or sell a certain number of futures contracts. The more developed futures trading is, the more basic options trading is. Therefore, the mature futures market and complete rules create conditions for the emergence and development of option trading. The emergence and development of option trading provide hedgers and speculators with more options for futures trading, thus expanding and enriching the trading content of the futures market;
Fourth, futures trading can be short, and traders do not necessarily make physical delivery. Option trading can also be long and short, and the buyer does not have to actually exercise this right, but can also transfer this right as long as it is beneficial. The seller does not have to perform, but he can relieve his responsibility by buying the same option before the option buyer exercises his rights.
Fifth, because the subject matter of the option is the futures contract, both the buyer and the seller will get the corresponding future positions when the option is executed.
The difference between option trading and futures trading
Different themes
The subject matter of futures trading is standard futures contract; The subject matter of option trading is a right to buy and sell. After purchasing the right, the buyer of the option gets the option. You can exercise the right to buy or sell the underlying assets within the agreed time limit, or you can give up exercising the right; When the buyer chooses to exercise his rights, the seller must perform the contract.
The rights and obligations of investors are different.
The option is a one-way contract, and the buyer of the option can perform or not perform option contracts's rights after paying the option premium, without having to bear the obligation; Futures contracts are two-way contracts, and both parties to the transaction have the obligation to deliver futures contracts at maturity. If you are unwilling to actually deliver, you must hedge within the validity period.
Different performance guarantees
In option trading, the biggest risk of the buyer is limited to the paid royalties, so there is no need to pay the performance bond. However, the risk faced by the seller is greater, and the seller must pay the deposit as the performance guarantee. In futures trading, both buyers and sellers of futures contracts have to pay a certain percentage of margin.
The characteristics of profit and loss are different.
Option trading is a nonlinear profit and loss state, and the buyer's income fluctuates with the fluctuation of market price, and its maximum loss is limited to the premium of purchasing options; The loss of the seller fluctuates with the fluctuation of the market price, and the biggest gain (that is, the biggest loss of the buyer) is the commission; Futures trading is a linear profit and loss state, and both sides of the transaction are faced with unlimited profits and endless losses.
Different functions and effects
Futures hedging is not about futures, but about the physical (spot) of the basic financial instruments of futures contracts. Because futures and spot prices will eventually converge, hedging can achieve the effect of protecting spot prices and marginal profits. Options can also be hedged. For the buyer, even if he gives up the performance, he only loses the insurance premium and protects the value of his purchase funds. For the seller, either the goods are sold at the original price or the insurance premium is guaranteed.
Summary: The above is about "What's the difference between options trading and futures trading? Introduced the similarities and differences between futures trading and option trading. " I hope it helps you.