Options and Futures are both financial products investors can use to make money or to hedge investments. Both an option and a future allows an investor to buy an investment at a stipulated price by a stipulated date. But the financial markets work differently for these two products. An option contract gives an investor the right, but not the commitment, to buy shares at a specific price at any time, as long as the contract is in effect. A futures contract requires a buyer to purchase shares and a seller to sell them on a specific future date.
What are the different types of Options and how to invest in it?
Options are the value of underlying security such as a stock. As said above, an options contract gives the investor a chance to buy or sell his asset at a specific price. Options are a derivative of investment. Usually, buyers pay a premium for option contracts, which reflect 100 shares of the underlying asset. Premium represents the asset's strike price. There are different types of options namely Exchange-traded options, Overcount options, Employee stock options, Exotic options, and cash-settled options.
What are the different types of Futures and how to invest in it?
Futures is the obligation to sell or buy an asset or at a later date at an agreed price. A futures contract is a true hedge investment and is most understandable in commodities like corn or oil. For example, a farmer would like to lock an acceptable price upfront in case market prices drop before the crop gets delivered. The buyer also wants to lock in a price upfront, too, if prices drop by the time the crop is delivered. Stock futures, Index futures, Currency futures and interest rate futures are some of the types of futures.
Futures and options are derivatives whose value is derived from an underlying asset. There are different types of assets on which derivatives are available. F&O is used for two main purposes. One is to hedge against price risks, another is to profit from changes in prices or speculations.