Options vs Futures/Forwards
Hey guys,
I know all about options and futures/forwards, but I am still a little confused on why a company/person woould choose one over the other.
For example, if it is an oil-porducing company that wants to hedge against a drop in the price of oil, why would it be better to purchase a future/forward contract rather than to buy a put option?
Any insight into the uses on these different contracts (and pros/cons) would be greatly appreciated.
Thanks
is that futures require no capital commitment on day 0, you are only obliged to pay the set amount when the future matures
u have confused futures with forwards there
options guarantee a minimum price. The oil producing company knows it'll be selling a million barrels a year from today -
getting into a futures/forward contract would fix the rpice those 1MM barrels are sold for - buying puts would guarantee a minimum price they would be sold for - but they could still be sold for more!
Of course, a future/forward would cost less than a put with the same strike.
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