1. The Contract Premiums:
When a buyer purchase a derivative, whether it be a call or a put options we have to pay a one time fee which is called as premium on the other hand, sellers collect the premium call and put options. The value of these contracts deteriorates as the settlement date is going to approach. However, the premium prices may rise and may sometimes fall, this rise and fall of premium prices will allow users to sell and buy. These are calls and puts so as to earn profit in respect of expiration date. People who are selling options can purchase the call options so as to cover the size of the position.
The other hand, the stock futures can either be as single stock future or it can be of broader performance. In the stock futures generally the buyers keep something other than the contract premium at the time of purchase which is known as initial margin, it’s a price to be paid for the stocks future.
2. The Buyer and Seller Obligations:
The traders who purchase the call put options may receive the right to buy or sell particular stock at a particular strike price. Probably they are not obligated to exercise options in the time of the contract expires. Investors can only exercise option contracts when they are present in the money. And if the options are out of the money, then the contract fire has under the no obligation to purchase the stocks.
The buyers of future contracts are generally obligated to buy the stock from the seller upon expiration, no matter what is the price of an asset. But it is very rare for the stock futures to be held till the expiration date.
3. The Financial Liabilities:
When a buyer buys a stock option the only financial liability they have the cost of the premium when the contract is purchased. However, when the seller opens the put option for the purchase they have the maximum liability on the stocks underlining prices. If a Put option gives the right to sell to the buyer stock at dollar 60 per share, but a stock falls to dollar 10, so here the person who has initiated the contract has to agree to purchase those stocks for the value of the contract dollar 60 per share.
On the other hand, future contracts offer maximum liability to both the seller and the buyer of the agreement. When the underlining stock prices move in the favour or in against either the buyer for the seller, the parties are obligated for the additional capital into their trading accounts so as to fulfil the obligations.
4. The Investment Flexibility:
The stock options provide the facility to all its investors with both the right to buy a stock and right to sell this stock (but no obligation) through the call and the puts respectively.
But,there is one plus point for stock options investors that they have a breadth of the flexible strategies which is unavailable for the future spreading.
On the other hand, in the stock futures traders purchase the rights and all the obligations for the fulfillment once a position is opened.
Thus, by the help of above information and with the help of Stock Option Tips and Stock Future Tips, one can trade in the options and future market.