A:

Strike prices can be set for put and call options, but investors engaged in futures contracts are obligated to trade the underlying asset at the expiration date, regardless of price. Most stock futures do not make it to the expiration date – for a variety of reasons – but there is very little flexibility on futures price execution once they are agreed upon. In short, you cannot set the strike price for a future.

There can be options on futures contracts. A strike price may be placed on the future's option, not on the future itself. The option on a futures contract transfers the right to buy or sell the underlying futures contract at a given price.

Prices and Futures

Futures contracts are part hedge against risk and part gamble. In a standard futures contract, the buyer and seller agree to trade a specified amount of an asset either at an agreed upon price or, more commonly, before a given date in the future.

Futures shift the risk of future uncertainty across different parties. There are lots of ways to price this uncertainty, including the price change limit and margin amounts. There is not a strike price as with an option.

Price Change Limits

The closest futures contract function to a classic strike price is probably the price change limit. This limit determines the range between which contracts can trade daily.

For example, the price change limit on a commodity future might be $1. If the commodity's price had previously closed at $10, then the new upper price boundary would be $11 and the lower price boundary would be $9. These can be considered the strike price range where allowable contracts can be entered into at the exchange.

RELATED FAQS
  1. What is the difference between options and futures?

    An option gives a buyer the right, but not the obligation to buy or sell an asset, A futures contract obligates the buyer ... Read Answer >>
  2. Can an Option Have a Negative Strike Price?

    When it comes to exchange traded options, an option can't have a negative strike price. Read Answer >>
  3. What Happens to Call Options If a Co. is Bought?

    Typically, the announcement of a buyout offer by another company is a good thing for shareholders. Read Answer >>
  4. What is the difference between derivatives and options?

    A derivative is a financial contract that gets its value from an underlying asset. Options offer one type of common derivative. Read Answer >>
Related Articles
  1. Trading

    Futures Fundamentals

    This tutorial explains what futures contracts are, how they work and why investors use them.
  2. Trading

    An Introduction To Options On Futures

    It's easy to understand how options on futures work if you already have experience with stock options.
  3. Investing

    Bank of America Shares Seen Rising 8% Short Term

    Shares of BofA have outperformed the broader S&P 500 in 2018, up by nearly 2%.
  4. Trading

    Options Strategies for Your Portfolio to Make Money Regularly

    Discover the option-writing strategies that can deliver consistent income, including the use of put options instead of limit orders, and maximizing premiums.
  5. Trading

    Option trading strategies: A guide for beginners

    Options offer alternative strategies for investors to profit from trading underlying securities. Learn about the four basic option strategies for beginners.
  6. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  7. Trading

    Profiting From Stock Declines: Bear Put Spread Vs. Long Put

    If you're bearish, you should compare the risk/reward characteristics of these two strategies.
  8. Trading

    Five Advantages of Futures Over Options

    Futures have a number of advantages over options such as fixed upfront trading costs, lack of time decay and liquidity.
  9. Investing

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
RELATED TERMS
  1. Options On Futures

    An option on futures gives the holder the right, but not the ...
  2. Futures

    A financial contract obligating the buyer to purchase an asset ...
  3. Futures Contract

    An agreement to buy or sell the underlying commodity or asset ...
  4. Option

    Options are financial derivatives that give the option buyer ...
  5. Average Strike Option

    An average strike option is an option type where the payoff depends ...
  6. Forward Start Option

    A forward start option is an exotic option that is purchased ...
Trading Center