Economics Derivatives Questions
The main difference between futures and options is the obligation they impose on the parties involved.
Futures contracts require both parties to fulfill the terms of the contract at a specified future date. This means that the buyer is obligated to purchase the underlying asset, and the seller is obligated to sell it, regardless of the market conditions at the time of expiration.
On the other hand, options contracts provide the buyer with the right, but not the obligation, to buy (call option) or sell (put option) the underlying asset at a predetermined price within a specified time period. The seller, or writer, of the option is obligated to fulfill the terms if the buyer decides to exercise their right.
In summary, futures contracts impose an obligation on both parties to fulfill the contract, while options contracts provide the buyer with the right, but not the obligation, to buy or sell the underlying asset.