Question

In: Finance

Explain the difference between a long call option and a long futures position.

Explain the difference between a long call option and a long futures position.

Solutions

Expert Solution

Long call options involve payment fo upfront premium, long futures options involve payment of upfront margin.

Margin in futures contract may have to be deposited again to maintain at maintainable margin as they are marked to market everyday, no such amount needs to be paid for option contracts once the premium is paid.

Long future contract involves a obligation to buy and long option contract involves a right to buy.

Loss in option contracts are limited to premium paid and on future contracts are limited to the value of the security.


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