Then, since we have futures as an insurance tool, why do we need options?
We must first understand the difference between futures and options:
Futures are linear returns, and you can earn as much as you go up.
Option is a nonlinear return. The faster it rises, the greater its fluctuation, and the return changes exponentially, not linearly.
The main differences between options and futures are as follows: 1. The rights and obligations of buyers and sellers are different. 2. The performance guarantee is different. 3. The deposit is calculated in different ways.
From the perspective of the rights of buyers and sellers, the option contract gives the buyer the right, and the buyer can exercise and give up the right at any time within a certain period of time. Futures have only one delivery date. If the contract cannot be offset within a certain period of time, it must be delivered in kind at maturity.
In option contracts, the seller has only obligations. That is, as long as the buyer wants to exercise the option within the contract period, the seller should fulfill its obligations. The performance responsibility of futures trading is both sides and mandatory. If it doesn't offset, it must be cashed.
In terms of trading risk, the buyer's profit in option trading increases with the favorable price change, and if the price is unfavorable, the loss will not exceed the option fee. The profit and loss of both sides of futures trading increase or decrease with the price change, that is, they are faced with unlimited profits and endless losses.
In terms of cost, the premium of options is determined according to market conditions, and the buyer pays the seller. The biggest loss of the buyer is the insurance premium paid initially, and there is no additional obligation; In the process of trading futures contracts, it is also necessary to require the loss-making party to add margin according to price changes, and the profit-making party can appropriately withdraw excess margin.
To put it bluntly: although futures and options can be long and short, options trading is more flexible, not only long and short, but also long and short, and option buyers do not need to pay margin, so their hedging cost is lower. All these make options more flexible than futures in risk hedging, hedging and strategy combination, and adapt to more scenarios.