The pros and cons of buying futures contract or call options if the price of the cotton moves in adverse direction. Options: Options provide the estimation of financial instrument which would be purchased in near future. To purchase the option, the premium amount is paid by the person who has the right to execute the transaction. Futures contract: Futures contract refers to a contract in which the two parties agree to trade any asset or commodity at the present price executable in future. In futures contract the delivery of product and payment activities would be execute in the near future.

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Chapter 25, Problem 6CQ

Summary Introduction

To explain: The pros and cons of buying futures contract or call options if the price of the cotton moves in adverse direction.

Options:

Options provide the estimation of financial instrument which would be purchased in near future. To purchase the option, the premium amount is paid by the person who has the right to execute the transaction.

Futures contract:

Futures contract refers to a contract in which the two parties agree to trade any asset or commodity at the present price executable in future. In futures contract the delivery of product and payment activities would be execute in the near future.

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