Futures and Options

To summarize, Futures and Options are derivatives primarily designed to protect traders from price fluctuations. They typically have an underlying stock or commodity that are agreed to be bought or sold at a future date based on the current market price. Any stock, commodity or index can be traded in futures and options. Futures have the mandate to fulfill the agreement at the expiry date either as physically or through cash. Options however do not have any mandate and the buyer can choose to excercise the right to buy or sell at the expiry date. Options are of two types, CALL and PUT. CALL basically gives the buyer the right to buy from the seller and PUT gives the buyer the right to sell to the seller. Both futures and options carry an upfront price at the time the agreement is made which is referred to as the premium or the strike price.