Options give you a choice to act later; futures bind both sides to a trade with daily settlement, so they’re related derivatives, not the same contract.
Options and futures get mentioned in the same breath for a reason: both are exchange-traded derivatives used to manage price risk or take a view on prices. The trap is treating them as interchangeable. They aren’t. The cash you post, the way profits and losses hit your account, and the ways you can be forced into action differ in ways that matter.
Below, you’ll learn what each contract promises, how margin behaves, and how to pick the right tool for a task without relying on buzzwords.
What An Option Contract Really Gives You
An option is a contract that gives the buyer the right, not the obligation, to buy or sell an underlying asset at a set price by a set time. The buyer pays a premium up front. If the buyer holds to expiration and never exercises, that premium is the loss.
Two common types show up across markets:
- Call options — a right to buy at the strike price.
- Put options — a right to sell at the strike price.
Options are defined by the “right without obligation” idea in regulator-facing education material. The SEC’s investor bulletin lays out the basics and flags that options can be risky even when your loss is limited to the premium. SEC Investor Bulletin on options basics is a solid baseline read before you trade your first contract.
What The Option Buyer Pays For
The premium buys time and a decision point. You can hold, sell the option, or exercise if it makes sense. Option prices move with the underlying, time left, and implied volatility. That last piece matters: the same stock price can produce very different option prices from one week to the next.
What The Option Seller Takes On
The seller receives premium and takes the obligation if assigned. That’s why short options can carry open-ended loss in some structures. FINRA explains the right-and-obligation split clearly and is worth skimming if you’re unsure what assignment can do to your account. FINRA’s overview of options gives plain definitions and risk notes.
How A Futures Contract Works In Practice
A futures contract is a standardized agreement to buy or sell an asset for a listed delivery month at a price agreed when you enter the trade. Most traders close out before delivery, still the contract remains binding while you hold it.
Two mechanics define the day-to-day feel of futures trading:
- Margin is a performance deposit, not a loan. You post it to show you can cover losses.
- Positions are marked to market daily. Gains and losses flow in and out of your account each trading day.
The CFTC describes futures market basics in plain language, including the standardized nature of contracts and the way accounts are adjusted to reflect daily changes in value. CFTC basics of futures trading is a useful reference when you want definitions without sales copy.
Why Daily Settlement Changes The Risk Feel
With futures, a move against you doesn’t just show up as “unrealized” on a chart. It hits your account as a cash debit through daily settlement. If your balance drops below the maintenance level, you may have to add funds or reduce the position. This is why the contract size and tick value matter more than the entry price alone.
Are Options Futures? Clearing Up The Confusion
No single option contract is a futures contract. Options are rights with premiums. Futures are binding agreements with daily settlement. They can track the same underlying markets, yet they do it with different contract promises.
Most confusion comes from overlap in three spots:
- Shared goals — hedging and speculation can be done with either.
- Shared language — strike, expiration, settlement, margin get used in both areas.
- Shared underlyings — you can trade options on commodities and options on futures.
Options On Futures Are A Separate Category
Options on futures are options where the underlying is a futures contract. If you exercise, you end up long or short the futures position under that contract’s rules. Traders use them to cap downside while keeping exposure to the same markets that futures track.
Options Versus Futures Contracts With Real Tradeoffs
If you want a clean way to separate the two, focus on cash movement and obligations. Ask: “When do I pay, when do I get paid, and when can I be forced into action?”
| Feature | Options | Futures |
|---|---|---|
| Buyer’s commitment | Right to act, no duty to exercise | Binding agreement while held |
| Upfront cash | Premium paid by buyer | Margin deposit posted |
| Daily cash flow | Option value changes; no daily settlement unless closed | Marked to market with daily gains/losses |
| Max loss (buyer) | Premium (if held and expires worthless) | Can exceed margin deposit |
| Seller’s obligation | Yes, if assigned | Both sides obligated while position open |
| Typical time decay | Yes, value can erode as expiration nears | No time decay in the same sense |
| Settlement paths | Shares, cash, or a futures position (options on futures) | Cash or physical delivery by contract terms |
| Main sensitivity | Underlying price, time, implied volatility | Underlying price and daily margin swings |
Margin: The Word That Causes Most Misunderstandings
Buying options is simple: you pay the premium. Selling options can require margin that shifts as the market moves and as implied volatility changes. Futures margin is set to cover likely losses over a short time window, then your account is settled each day. You can read a clear description of mark-to-market and margin as a performance bond in CME’s educational PDF. CME’s guide to futures mark-to-market and margin explains the concept without heavy math.
Where Each Contract Fits In Real Decisions
Pick the contract that matches the job you’re trying to do, not the one that sounds simpler.
Hedging: Locking A Price Versus Buying Insurance
Futures hedges tend to move dollar-for-dollar with the underlying market, which is why producers and consumers use them to manage price swings. Options can act like insurance: you pay premium for protection while keeping upside if the market moves your way. That flexibility is why options are common when a strict “lock” would feel too rigid.
Trading A View: Direction, Volatility, Or Both
Futures express a directional view in a direct way: long benefits from price rises, short benefits from price drops. Options can express direction too, and they also let you trade volatility and time. That extra dimension is a feature, and it’s also a source of surprises when option prices move even while the underlying sits still.
Contract Details To Check Before You Click Buy
This is the part many people skip. Don’t. Most painful mistakes come from not knowing the contract’s scale.
Contract Size And Tick Value
Every listed futures contract has a defined size and a tick value. Write down what one tick is worth in dollars, then multiply by a move you could see in a normal session. If that number makes your stomach drop, your position is too big.
For equity options, contract size is often 100 shares. A $0.50 move in option price can mean $50 per contract. That math is simple, and it’s the reason “small” price changes can feel large.
Expiration And What Happens After
Options have a hard expiration date. Past that point, the contract is gone. Futures contracts have delivery months and contract-specific settlement rules; many active traders roll to a later month before the final period to avoid delivery-related steps and liquidity shifts.
Assignment Risk For Short Options
If you sell listed options, you can be assigned, which can create positions you didn’t plan to hold. Assignment can happen around expiration, and in some contracts it can happen earlier. Treat short options as obligations first and “premium income” second.
A Simple Selection Checklist For Newer Traders
This is a quick filter you can use when you’re stuck deciding which product to use for an idea.
| If You Need This | Usually Favors | What To Check |
|---|---|---|
| Defined maximum loss at entry | Buying options | Premium size, expiration, implied volatility |
| Dollar-for-dollar exposure | Futures | Contract size, tick value, margin level |
| Protection with upside still open | Buying options | Strike choice, time to expiry, total premium paid |
| Ability to trade volatility directly | Options | Time value, volatility sensitivity, spreads |
| Hedge for a cash or physical position | Either | Month match, hedge ratio, basis risk |
| Short-term directional trade | Either | Liquidity, slippage, exit plan |
Practical Steps Before A First Live Trade
- Write down the contract math. Contract size, tick value, and what a normal adverse move costs.
- Plan cash for margin swings. For futures, plan for repeated daily losses before you decide to exit.
- Respect spreads. Wide bid/ask spreads can quietly tax every entry and exit.
- Keep position count small at first. One contract can teach more than ten when you’re still learning how cash moves.
If you only read two official primers, start with the CFTC’s futures basics and the SEC’s options bulletin linked above. They’ll keep you grounded in what the contracts legally do, which is where good risk control starts.
References & Sources
- Commodity Futures Trading Commission (CFTC).“Basics of Futures Trading.”Defines futures contracts, explains exchange trading, and notes daily account adjustments and risk disclosures.
- U.S. Securities and Exchange Commission (SEC) via Investor.gov.“Investor Bulletin: An Introduction to Options.”Explains that options give buyers rights without obligations and outlines common risks for retail traders.
- FINRA.“Options.”Defines options and summarizes how buyers’ rights and sellers’ obligations work, including risk considerations.
- CME Group.“A Trader’s Guide to Futures.”Describes futures standardization, mark-to-market settlement, and the role of margin as a performance bond.