Question
Identify and describe the fundamental distinctions between a futures contract and an option contract, and briefly explain the difference in the manner that futures and
Identify and describe the fundamental distinctions between a futures contract and an option contract, and briefly explain the difference in the manner that futures and options modify portfolio risk.
I Need different answer please other than this answer
The significant difference between a futures contract and an options contract is that the futures contract is an obligation. When an investor purchases or sells a futures contract, the investor has an obligation to accept or deliver, correspondingly, the underlying commodity on the delivery date. In disparity, the buyer of an option contract is not indebted to accept or deliver the underlying commodity but instead has the right, or choice, to accept or deliver the underlying commodity anytime during the life of the contract. Futures and options adapt a portfolios risk in different ways. Buying or selling a futures contract affects a portfolios upside risk and downside risk by a similar magnitude. This is commonly referred to as symmetrical impact. On the other hand, the addition of a call or put option to a portfolio does not affect a portfolios upside risk and downside risk to a similar scale. Unlike futures contracts, the impact of options on the risk profile of a portfolio is asymmetrical.
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