Outright Futures Position

DEFINITION of 'Outright Futures Position'

A long or short trade on an underlying futures contract that has the potential for unlimited profit, but also carries the risk of unlimited losses. Outright futures are also called naked futures because they leave the investor highly exposed. To reduce risk, the investor may choose to purchase a protective, offsetting option or the underlying security itself.

BREAKING DOWN 'Outright Futures Position'

An example of a financial instrument an investor might choose, instead of an outright futures position, is a synthetic long put option. Investors might purchase this type of option when the price of a commodity is expected to drop and they want unlimited potential profit but limited risk. The synthetic will also have much lower up-front costs than an outright futures position. Another alternative to an outright futures position that can sometimes carry less risk is to take a spread position.

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RELATED FAQS
  1. What does "outrights" mean in the context of the FX market?

    The term "outrights" is used in the forex (FX) market to describe a type of transaction in which two parties agree to buy ... Read Answer >>
  2. My brokerage firm won't allow naked option positions. What does this mean?

    A naked position refers to a situation in which a trader sells an option contract without holding a position in the underlying ... Read Answer >>
  3. Why are call and put options considered risky?

    Learn why put and call options are considered risky and see how, depending on which side of the contract you are on, you ... Read Answer >>
  4. What types of options positions create unlimited liability?

    Understand that naked selling of call options can create unlimited amounts of liability and potentially lead to devastating ... Read Answer >>
  5. How do the investment risks differ between options and futures?

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  6. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ... Read Answer >>
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