Options

• Options offer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date), according to the Investopedia website's definition. Investors purchase options to speculate on an asset's value, insure against an asset's price fluctuations or generate income. Options can be traded, exercised or allowed to expire without delivery requirements.
  
  

Futures

• Futures are contracts obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures are used to speculate on the future value of an asset or to hedge against the market risk of a commodity that is consequential to a company's operations. Futures contracts can be traded, but the final holder is expected to take delivery of the underlying asset at expiration.
  
  

Options on Futures

• Options on futures are contracts that give the holder the right to enter into a specified futures contract. The option can be traded, exercised or allowed to expire without taking delivery. The underlying futures contract has a physical delivery obligation. If the option expires unexercised, that obligation isn't transferred. If the option is exercised, that obligation is transferred according to the rules of the option contract.
  
  

Considerations

• Investing in options and futures is risky. Options expiring unexercised means losing the entire investment, while futures held at expiration means taking physical delivery of the underlying asset. Options and futures experience large price fluctuations and could carry excessive financial risks for investors. If you're inexperienced or unfamiliar with options and futures, consult a licensed financial professional first.