Chapter 02 · Section 2.1
Risk
We will now complete the following table:
FUTURES PURCHASED OPTIONS
Risk (potential loss) ..... .....
Margin Calls ..... .....
Hedging Strategies ..... .....
Price Protection ..... .....
a) Futures trading involves an unlimited risk, whereas the potential loss on the purchase of an exchange-traded options contract is defined and limited.
b) Options trading involves an unlimited risk, whereas the potential loss on the purchase of a futures contract is defined and limited.
"Risk" is your exposure to potential loss. What happens if the futures market moves continually against your position? What is the most you can lose on an options purchase?
The most you can lose on an options purchase is the premium you paid for the option. Of course you also have to take fees and brokerage commissions
into account.
The most you can lose on an options purchase is the premium you paid for the option. Of course you also have to take fees and brokerage commissions into account.