Options On Futures

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DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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. What kinds of derivatives are types of forward commitments?

    A derivative is a type of security in which the price of the security is dependent on underlying assets. A derivative could ... Read Full Answer >>
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    A derivative is a type of security in which the price of the security is dependent on one or more underlying assets. A derivative ... Read Full Answer >>
  3. What is an over-the-counter derivative?

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  4. What does the underlying of a derivative refer to?

    A derivative security is a financial instrument in which the price of the derivative is dependent on its underlying asset. ... Read Full Answer >>
  5. What kinds of derivatives are types of contingent claims?

    A contingent claim is another term for a derivative with a payout that is dependent on the realization of some uncertain ... Read Full Answer >>
  6. How can an investor terminate a derivative contract?

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