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Option contract gives the buyer the right to buy/sell with no obligation
Future contract the buyer and seller of the contract has the right to buy and sell the assets with oblingations
Option contract has a limited liability – ‘premium’ in case of loss in a trade. One cannot limit the loss in the case of futures.
Futures come with obligation to honor the contract which is not necessarily the case with options
The difference between options and futures lies in the obligations, they put on their buyers & sellers. An option gives the buyer the right but not the obligation to buy or sell a certain asset at a specific price at anytime during the life of a contract
The difference between the two are obligations. In futures contaract, we have the obligation to cover even if he is in loss from the purchased or sold price. But in options contract, the obligations come into play only if the price moves above / below the strike price when the contract is sold/bought.
Future is a type of derivative where the buyer and the seller agree to trade an asset(usually stocks) at a speculated price on a mutually agreed time. Both the seller and the buyer have rights as well as obligation.
Option is almost like a Future contract but here only the buyer has the rights and the buyer has no obligations at all. They both agree upon a Strike Price to trade an asset on an expiry date. Here, the seller gets a Premium for signing the contract. The seller has no rights but has an obligation.
If the market price goes above the strike price on the expiry date, the buyer has the rights to buy the asset at the Strike Price and hence the seller has the obligation to compensate the remainder.
If the market price stays below the strike price on the expiry date, nothing happens and the contract ends.
Here, the maximum loss the buyer can get is the Premium and the maximum profit is decided by the market price. The maximum profit the seller can get is the Premium and the maximum loss is decided by the market price.
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