options give the holder the RIGHT to buy or sell an underlying asset at a given price; future is a standardized contract to buy or sell an asset at a certain date in the future and at a market-determined price.
An option is a contract between two parties to either buy or sell an underlying security at a specified strike price at a designated expiration date. Options expire around the 15th of each month. Futures are essentially commodities. Sugar, pot bellies, corn, oil etc. You buy a contract to purchase a specified amount of a commodity with the expectation that the future price will be greater at the expiration of your contract. That is, unless you are shorting the position, but that's for another day. Hedging is using a variety of techniques to minimize risk and lower losses should a position take a direction you did not anticipate.
Businesses by nature are risky. A business makes thousands of decision in the face of challenges and uncertainties. These uncertainties are what constitute risk. Risk is of two types – business risk and financial risk. A business risk is a risk... read more