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Your Money – Options & futures: Know the differences
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By Sunil K Parameswaran
Forward and futures contracts are known as commitment contracts. This is because, once a party enters into such a contract, it has an obligation to perform, irrespective of whether it has earned a profit or incurred a loss. In contrast, options contracts are known as contingent contracts as performance by the holder is contingent on the occurrence of an event.
In the case of calls the holder will exercise only if the spot price of the underlying asset is greater than the exercise price of the contract. Similarly, put holders will exercise if and only if the spot price is less than the strike price of the contract.
Futures and options Both futures and options are agreements negotiated today with respect to future
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