On the surface, both trading options and futures can buy or sell the underlying assets at some time in the future. However, their essential attributes are quite different. Option contract is the embodiment of the buyer's right to buy and sell the underlying assets at the agreed price on the maturity date, while futures is a trading method of paying first and then delivering. Specifically:
Option is the securitization of rights. If you buy a call option, you have the right to buy the underlying asset at the exercise price on the maturity date. The option contract itself is valuable, and the price that investors trade in the option market is the premium of the option, that is, the consideration that needs to be paid for having this right, not the price of the target itself.
Futures is a way of trading. Buying a futures contract is equivalent to buying a certain amount of underlying assets, but the underlying assets can only be delivered on the maturity date. Unlike the option contract, the futures contract itself has no value, and the contract position added after the opening transaction has no asset value. The price investors trade in the futures market is not the price of the futures contract itself, but the price of the underlying assets on the maturity date.
Second, the difference between the rights and obligations of buyers and sellers.
In the spot market, both buyers and sellers have equal rights and obligations stipulated in the contract, whether trading stocks or commodities. The seller needs to deliver the goods as agreed, and the buyer must pay the consideration. At this point, futures are similar to spot. Futures contracts are two-way contracts, and both parties to the transaction have the obligation to deliver futures contracts at maturity. If they are unwilling to deliver, they must cancel the transaction and close the position within the validity period. However, in option trading, the rights and obligations of buyers and sellers are not equal. At the expiration of the contract, the buyer has the right to choose to buy or sell the underlying assets at the price stipulated in the contract, or choose to give up this right, and the seller has the obligation to passively perform the contract according to the buyer's requirements. Once the buyer puts forward the right of exercise, the seller must terminate the option contracts by performing the contract. This is why we usually call the buyer of the option contract the right party and the seller the obligation party.
It is precisely because of the different symmetry of rights and obligations between buyers and sellers that the profit and loss characteristics of option trading and futures trading are also very different. In option trading, the rights and obligations of buyers and sellers are asymmetric, so the profits and losses of both parties are also asymmetric: the buyer may have unlimited profits, but the losses are limited, and the biggest loss is the royalties paid; On the contrary, the seller's income is limited, that is, the royalties collected, but the potential losses are uncertain, and even infinite losses may occur. In the futures trading with equal rights and obligations of buyers and sellers, with the change of futures prices, both buyers and sellers are faced with unlimited profits or losses.
Third, the differences in trading methods.
When we open the market page of options and futures in trading software, it is easy to find that options and futures are very different in contract arrangement. In the option market, there are not only differences in different months, but also differences in exercise price, call option and put option. Moreover, with the fluctuation of the underlying asset price, there may be new option contracts with exercise price, so the number of option contracts is relatively large. Futures contracts only distinguish delivery months, so the number of futures contracts is relatively fixed and limited.
In addition, investors may need to pay margin as performance guarantee when trading options or futures, but the margin arrangement of options and futures is different. In option trading, the buyer pays the royalties to the seller, but does not pay the deposit; The seller receives the royalty, but must pay the deposit. With the change of the price of the underlying assets, the seller may need to pay an additional deposit. In futures trading, buyers and sellers have no cash payment relationship when trading, but they all have to pay trading margin. At the same time, due to the implementation of the debt-free settlement system on the same day, the daily position margin of buyers and sellers will also change with the price of the underlying assets.
When investors try to establish different investment strategies to cope with different market conditions, it is not difficult to notice that options and futures are different in applicable market conditions and ways of obtaining income. Under normal circumstances, if only spot trading is carried out, only when the market goes up can you get benefits. With futures contracts, investors can buy and sell futures contracts separately when the market goes up and down to earn profits. In the option market, investors can not only make profits when the market goes up and down, but also make profits by long or short fluctuation strategy when the market fluctuates greatly or sideways, and also make use of the time value of options to make profits.
Fourth, the difference of hedging effect.
Insurance function is one of the most basic functions of derivatives such as options and futures, and insurance strategy is also the most commonly used trading strategy for investors in actual transactions. Investors can achieve the purpose of hedging risks by holding opposite derivative positions while holding spot positions. However, because of the different profit and loss characteristics of options and futures, their hedging effects are not the same.
If futures are used for hedging, investors can sell futures contracts when they hold spot long positions or buy futures contracts when they hold spot short positions. Because the movement direction of futures and spot prices will eventually converge, the loss of spot market will be made up by the profit of futures market. However, hedging with futures not only hedges risks, but also hedges potential profits. When the market trend is unfavorable to the spot position held, futures hedging can play the role of hedging risks, but when the market trend is favorable to the spot position held, the future positions held will generate losses and devour the profit at the spot end.
If options are used for hedging, investors can buy put options while holding spot long positions, or buy call options while holding spot short positions. Because the potential gains and losses of options are asymmetric, the maximum loss of a call option contract is limited to the premium paid. Therefore, when the market trend is unfavorable to the spot position held, the loss in the spot market will be made up by the profit in the option market, while when the market trend is favorable to the spot position held, the spot income exceeds the premium cost, and the option hedging portfolio can get additional income.