Explain the difference between a put option and a short position in a futures contract
Explain the difference between a put option and a short position in a futures contract
Homework Answers
If you buy put option, you have right to sell the stock at particular price (strike price) at future date (expiry).
If you take a short position in future, you have obligation to sell at that price at future date (expiry)
Major difference is with regards to right and obligation. In futures, there is obligation to settle. In long put option, buy has the right to sell.
So, if you buy put option and the price goes up, you need not settle the contract and maximum loss will be the premium amount paid at the time of buying the option.
However, in case you short future, you have obligation to settle the contract even when the price does not moves in your favour.
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Explain the difference between a put option and a short position
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