Futures vs Options Trading: Which is More Profitable? |

By Trader Pit

July 7, 2021


Futures or Options? These two trading instruments are the cornerstone of the world’s financial markets. Futures are a derivative of an underlying asset, and can be used as a form of insurance by providing protection against a fall in the value of an asset. On the other hand, options are contracts that give their owners the right, but not the obligation, to buy or sell a certain commodity at a set price in the future.

Futures and Options are two of the most common forms of trading available to traders. Most traders know of futures, but few know of options, and the purpose they serve is often misunderstood. Most people think of an option as a contract which gives the purchaser the right to buy or sell a specific commodity at a future date at a specified price. A futures contract, on the other hand, is a contract that enables a trader to purchase or sell a certain commodity at a predetermined price on a specific date in the future.

An options contract can be thought of as a kind of insurance policy against a stock price going down. The value of the option is usually expressed as a number of shares, and an option buyer is also obligated to pay a premium to the seller of the option. Because the premium is a cost, the buyer is said to “exercise” the option, and the value of the option becomes the sum of the cash that the buyer will receive when he exercises the option and the premium he will pay.. Read more about futures vs options, which is better and let us know what you think.Trading futures and options – before we connect the dots, we need to understand what each of these financial instruments entails. But first it is important to understand what ownership means.

Owning shares is like owning a share in a company. Shareholders have the right to vote and have a say in the management and operation of the company. Shareholders are partners in the growth of the company and in difficult times. You are entitled to dividends.

Now that you know the meaning of capital ownership, I will give you a basic definition of futures and options trading:

Futures contracts are like forward contracts whose value is determined by the value of the underlying asset. For companies, the underlying asset is the share price; for an index, it is the spot price of the index. Holders of futures contracts have no ownership rights to the asset they are underwriting.

Options, as the name suggests, allow the buyer to buy (call) or sell (put) on or before the expiration date of the contract. He buys this right from the seller of the option by paying a consideration (premium), and the seller is obliged to keep his promise.

Read more: Options trading 101 : The big cat of the negotiation world

Benefits of a futures contract

Here are some key benefits of futures contracts:

  1. Since futures contracts derive their value directly from the underlying asset, any change in the price of the underlying asset is also proportional to the change in value of the futures contract.
  2. A futures contract can be rolled over to the next monthly contract at the same price as the expiration price.
  3. With a futures contract, there is no problem of maturity over time because its value is directly proportional to the value of the underlying asset and maturity does not affect its price.
  4. Liquidity is one of the most important factors in futures trading. With the current bid and ask prices, interested parties can easily enter and exit their positions.
  5. The margin required to trade futures contracts has not changed significantly in recent years. They change easily when the market becomes volatile. This way the trader is always aware of the margin required before taking a position.
  6. The price is easier to understand because the value is based on the cost of carry model, i.e., the forward price should equal the current loco price plus the cost of carry.

I am a big fan of futures and options trading as a way to generate income and make money. I find it very easy to learn new trading methods since I can read about them in books and on the internet. However, I’ve had a few questions about what I should trade to make money. So today, I am going to review the best futures and options trading methods available.. Read more about futures options vs stock options and let us know what you think.

Frequently Asked Questions

Which is more riskier futures or options?

Options are more risky than futures because they are more volatile.

Can Futures Trading make you rich?

The answer is yes and no. It is possible to make a lot of money through futures trading, but it is also possible to lose a lot of money. The key to success is to understand the risks and to be able to manage them. If you are willing to take the risk, futures trading can be a lucrative business.

Are futures profitable?

If you’re looking to invest in futures, you should be aware that there are risks involved. In general, futures contracts are profitable if the price of the underlying asset does not change. However, if the price of the asset increases, the futures contract will be a loss.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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