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That's risky though, it's possible to get ruined by buying futures (or put options for that matter) since it's basically a contract that must be fulfilled at so
by blablabla123 7y ago
That's risky though, it's possible to get ruined by buying futures (or put options for that matter) since it's basically a contract that must be fulfilled at some point in the future. AFAIK normally they function as insurance for buyers and sellers, to create more market stability.
- donnellycc 7y agoCrude futures are liquid enough that you can almost always sell them before fulfillment date if you do not want to be on the hook for the obligation. They can't be early exercised like options can.
- shawabawa3 7y agoPut options are called options for a reason You never have to exercise if you don't want to so there's a fixed maximum cost
- blablabla123 7y agoI'm no expert in this, but my understanding is that futures are a mutual obligation and options are a one-sided obligation. So in case of a put option, it's optional for the other side - in case of a call it's optional for me. Correct me if I'm wrong, but I assume there is a good reason why banks require additional paperwork from people who want to trade options/futures that must be renewed on a regular base.
- shawabawa3 7y agoI think you're probably thinking about the difference between Writing (or selling) options and buying them Both call and put options are optional for the option holder to exercise (realistically you only ever exercise if they are in the money, or worth something). You usually don't need any additional paperwork to buy options Writing options on the other hand has unlimited potential downside. It's much harder to get brokers to allow you to do this. Many will only let you write "covered" options - meaning you also hold the underlying shares, which limits your downside