Options On Futures

What are 'Options On Futures'

An option on a futures contract gives the holder the right to enter into a specified futures contract. If the option is exercised, the initial holder of the option would enter into the long side of the contract and would buy the underlying asset at the futures price. A short option on a futures contract lets an investor enter into a futures contract as the short who would be required to sell the underlying asset on the future date at the specified price.

BREAKING DOWN 'Options On Futures'

Essentially, the futures specified in the option contract allows someone to enter into the specified futures contract when the option expires.

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RELATED FAQS
  1. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  2. What does the underlying of a derivative refer to?

    Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ... Read Answer >>
  3. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  4. What is the difference between an options contract and a futures contract?

    Both futures and options trading are considered advanced forms of market trading, and require additional training or the ... Read Answer >>
  5. What is the difference between options and futures?

    The main fundamental difference between options and futures lies in the obligations they put on their buyers and sellers. ... Read Answer >>
  6. How do I set a strike price for a future?

    Find out why futures contracts don't have set strike prices like options or other derivatives, even though price change limits ... Read Answer >>
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