The difference between futures and options
(a) Different themes
The subject matter of futures trading is commodities or futures contracts, and the subject matter of option trading is the right to buy and sell options of commodities or futures contracts.
(B) the symmetry of investors' rights and obligations is 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 insurance premium, without undertaking obligations; 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.
(3) Different performance guarantees
Both buyers and sellers of futures contracts must pay a certain amount of performance bond; In option trading, the buyer does not need to pay the performance bond, but only requires the seller to pay the performance bond, which shows that he has the corresponding financial resources to perform the option contracts.
(D) Different cash flows
In option trading, the buyer has to pay the insurance premium to the seller, which is the price of the option, which is about 5% ~10% of the price of the traded commodity or futures contract; Option contracts can be circulated, and their insurance premiums will change according to the changes in market prices of traded commodities or futures contracts. In futures trading, both buyers and sellers have to pay an initial deposit of 5% ~ 10% of the face value of the futures contract, and during the trading period, they have to collect additional deposits from the losing party according to the price changes; The profitable party may withdraw the excess margin.
(e) The characteristics of profit and loss are different.
The income of the option buyer fluctuates with the change of market price, and its loss is limited to the insurance premium of the option; The seller's income is only the insurance premium of selling options, but its loss is not fixed. Both sides of futures trading are faced with unlimited profits and endless losses.
(VI) The role and effect of hedging are different.
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.