Futures and Options are derivative instruments given by the stock market. Anything can be traded in these markets, whether it be stocks of companies, crops like rice, wheat, etc, or metals like gold, silver, etc. These items are traded with respect to a future date in mind.
The buyer and seller of the futures gets the Right to buy and Right to sell the commodity respectively at predetermined strike price, and they are obligated to fulfill the contract at the Expiry date of the contract.
The buyer of a Call option contract gets the rights to buy the commodity at the predetermined strike price, but he is not obligated to do so. Likewise the buyer of Put option gets the right to sell the commodity at the strike price, but is not obligated to do so. So this protects the buyer of option contracts from sudden market fluctuations. But the risk to the Seller of option contracts is infinite. So the buyer of option contract has to pay the seller a premium which is non- refundable.
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