Options And Futures: Understand The Functioning, Types and Other Factors
5paisa Research Team
Last Updated: 30 Dec, 2024 02:53 PM IST

Content
- Introduction
- What is Future Option?
- Different types of future options:-
- How does a call future option work?
- What is a put option on the futures?
- How Options On Futures Work
- Example of Options on Futures
- Further Considerations for Options on Futures
Introduction
Futures and options are both significant types of stock derivatives that are traded in the share market. Future option or Option Futures meaning can be quite confusing for a lot of people. Options Futures and other derivatives are traded in the share market. A future is a contract that is legally binding and is put to use when buying or selling a financial instrument or an underlying commodity or asset at a predetermined price on a particular date.
On the other hand, an Options contract gives an opportunity and the right but does not put the investor under any obligation of buying or selling at a particular date or price, which is known as the expiry date.
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.
Frequently Asked Questions
Future contracts are standardized contracts that can be bought and sold on an exchange by the investors. These contracts allow investors or traders to trade in an underlying commodity or underlying asset at a predetermined price on a pre or prior-specified date, i.e. the expiration date for the options.
Both options and futures have their own pros and cons. One advantage of options over futures is obvious, which is that an options contract gives the buyer the right and doesn't put them under an obligation to buying or selling a financial instrument or an asset at a fixed and predetermined price on or before the predetermined future month.
Earlier, in 2015, the limit was Rs.5 lakh. At present, SEBI securities and the exchange board of India have introduced stocks for options trading to be set at Rs. 7.5 lakh. Therefore, the lot size is not fixed and keeps changing with the change in the stock price.
You can begin trading in F and O by opening a trading account or derivative trading account. With this account, you can start trading from anywhere in F and O.
Futures and options are two derivatives that are used by traders to buy or sell an asset at a pre-decided price. The profits are made when the price rises when traders are in a buy position and when in a sell position, a fall in price becomes beneficial.
Futures are better as they have several advantages over options. This is because they are often easier to understand and value, are more liquid and have a higher margin use. However, it is best to know all risks involved first before trading futures.
When it comes to being safer, options are considered safer than futures. Futures are riskier as they are directly involved in volatility and asset prices. On the other hand, options react in a different manner to the underlying asset price movement and allow a relatively long time to curtain and manoeuvre losses.