The main difference between a currency future and a currency forward is that futures are traded through a central market, whereas forwards are over-the-counter contracts (private agreements between two counterparties). A forward contract sets a rate with an expiry date.

17) The major difference between currency futures and forward contracts is that futures contracts are standardized for ease of trading on an exchange market whereas forward contracts are specialized and tailored to meet the needs of clients.

But there are slight differences between the two. While a forward contract does not trade on an exchange, a futures contract does. Settlement for the forward contract takes place at the end of the contract, while the futures contract settles on a daily basis.

Options and futures are traded as standardized contracts on exchanges, whereas forward contracts are negotiated agreements between counterparties. Prices of derivatives vary directly or inversely with the prices of underlying assets, but they also can vary as a function of the time left until the contract expires.

A forward contract is a private and customizable agreement that settles at the end of the agreement and is traded over-the-counter. A futures contract has standardized terms and is traded on an exchange, where prices are settled on a daily basis until the end of the contract.

4 Types of Option Orders

• Buy-to-Open (BTO) Buying to open establishes a position in an option when the investor buys either a Long Call or Long Put.
• Sell-to-Open (STO) Selling to Open indicates that the investor is bearish on the value of the option.
• Buy-to-Close (BTC)
• Sell-to-Close (STC)
• Bear Put Spread.
• Long Straddle.
• Iron Condor.

Basic Options Strategies with Examples

• Profit from stock price gains with limited risk and lower cost than buying the stock outright.
• Profit from stock price drops with limited risk and lower cost than shorting the stock.
• Profit from sideways markets by selling options and generating income.
• Get paid to buy stock.

A call option is bought if the trader expects the price of the underlying to rise within a certain time frame. A put option is bought if the trader expects the price of the underlying to fall within a certain time frame. The strike price is the set price that a put or call option can be bought or sold.

“Call” : Think price will go up. “Call someone up”. “Put” : think price will go down “Put something down”.

Call and Put Options A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. Think of a call option as a down-payment for a future purchase.

For example, a single call option contract may give a holder the right to buy 100 shares of Apple stock at $100 up until the expiry date in three months. It is the price paid for the rights that the call option provides. If at expiry the underlying asset is below the strike price, the call buyer loses the premium paid.

A call option writer stands to make a profit if the underlying stock stays below the strike price. After writing a put option, the trader profits if the price stays above the strike price. An option writer’s profitability is limited to the premium they receive for writing the option (which is the option buyer’s cost).

This is the price that it costs to buy options. Using our 50 XYZ call options example, the premium might be $3 per contract. So, the total cost of buying one XYZ 50 call option contract would be $300 ($3 premium per contract x 100 shares that the options control x 1 total contract = $300).

Occasionally a stock pays a big dividend and exercising a call option to capture the dividend may be worthwhile. Or, if you own an option that is deep in the money, you may not be able to sell it at fair value. If bids are too low, however, it may be preferable to exercise the option to buy or sell the stock.

Congratulations on a profitable long call options trade! In almost all of such cases, it is always more profitable to simply sell the options and take profit instead of exercising for the underlying stock.

Early exercise is only possible with American-style option contracts, which the holder may exercise at any time up to expiration. With European-style option contracts, the holder may only exercise on the expiration date, making early exercise impossible. Most traders do not use early exercise for options they hold.

When an option expires, you have no longer any right in the contract. When the strike price of an option is higher than the current market price of an underlying security, It is OTM for the call option holder. The buyer of the option will lose the amount (premium) paid for buying the security if expired OTM.

In finance, the expiration date of an option contract (represented by Greek letter tau) is the last date on which the holder of the option may exercise it according to its terms.

The expiration date is the specific date and time an options contract expires. An options buyer chooses the expiration date based primarily on 2 factors: cost and the length of the contract. Volatility estimates, Greeks, and a probability calculator can help you make this decision.

Selling options on the day that they will expire is one of the highest probability options strategies there is. Options are time depleting assets and decrease in value each day. So, selling options on the day of expiration is as close to a sure thing in options trading that you will learn.