Options and futures - the most important and the most liquid financial instruments in the futures markets.
They have many common parameters, but they have a fundamental difference.
Concept and types of futures
Futures - a fixed-term contracts, the contract fordelivery of the asset (commodity) in the future on the agreed terms. As the futures asset can act as a physical commodity (pork, oil, gold, grain, etc.), And specific financial instruments (bonds, stocks). Separately, you can select and currency futures for the purchase and sale of foreign currency.
Futures are divided into contracts for the purchase andsale. In most cases the purpose of buying futures - speculative, ie the buyer has no plans in the future to purchase goods. He tries to make a profit on the difference between the purchase price and sale of a futures contract.
Futures contracts are standardizeddeadlines, the expiry date, as well as the quantity and quality of the delivered goods. For example, 1 oil contract involves the supply of 1 th. Barrels. oil with desired characteristics (eg, Urals). After expiration of the contract (futures), carried out the delivery of goods. But the share of futures that exists prior to the delivery period is less than 3%
Another purpose of buying futures - risk hedging.
Concept and types of options
Option - a derivative financial instrument,It is a contract whereby the buyer or seller of an asset (a security, commodity) gets the right to buy or sell the asset at a predetermined price at the time fixed by the contract. In this case, the option seller is obliged to make a reciprocal sale / purchase of the asset in the future at the option conditions.
There are three main types of options -to buy (call option), to sell (put option) and bilateral (double option). Accordingly, the purchase option shall entitle the holder to buy the underlying asset at a fixed price, a put option - to sell the asset.
Options are traded both on the stock exchange, and in theOTC market. The first is a standard exchange contracts, they are treated similar to futures. They have their own specifications, bidders specifies only the size of option premium, the other parameters are set by the exchange.
OTC options are notstandardized - they are subject to the conditions discussed the transaction parties. Participants in the OTC market are large non-financial organizations. The objectives of the purchase options are speculative transactions (profit) or hedging (minimizing risks).
How do the options? In simplified form - the buyer acquires the option to buy 1 thousand to $ 20 thousand... In this case the buyer expects that the dollar price will be much higher and it will be able to make enough bargain in horse life of the option. If by the end of the term of the option will cost 30 tys.r. $ 1,000., This difference (10 tys.r.) and the buyer will profit (excluding the cost of the premium).
Differences of futures options
It is important to understand the difference between futures andoptions. The principal difference between the two instruments is that the buyer (or seller) futures contract is obliged to pay and get a particular commodity at an agreed price. option holder can also do this, but is not required. But if the option holder wishes to use it, the seller is obliged to execute delivery.
A distinctive feature of futures trading - the possibility of free exit from the seller and the buyer's market.
It goes right to the option buyer does notfree of charge, it pays a premium (the price for the opportunity of the transaction in the future). When purchasing futures, the buyer bears the full risk of the negative dynamics of the price of the contract, and the potential size of losses - is unlimited. And if the price of the option showed a negative trend, it buyer's risk is limited to the size of the premium only.
Options involve more complex calculations of risks, and the option price calculation requires special techniques. Therefore, this instrument is used only for professional investors and traders.