Options Trading
In a futures contract, options are financial instruments that allow you to take part in future transactions. In other words, you have the option to buy or sell an asset at a set price on or before a certain date. You don't have to feel obligated to take part, but you should know that you have the right to do so.
Options are derivatives, because they get or "derive" their value from underlying assets. There are various types of options, including stock options, commodity options, bond and interest options, index options, options on futures contracts, and, not listed on an exchange, over the counter options.
You also may have heard of employee stock options. These are given to employees by a company as part of compensation. There are risks to be assumed with trading or owning options. It is important to remember that an option is always a contract between two private parties. It is also important to remember that options provide you with flexibility to change your position if the situation presents itself.
However, there are risks involved. Risks are involved any time you invest, and more importantly, any time you invest in something you know little about. When you buy an option, you have to be correct in the timing and movement of the option in order to make any money from it. Hedging can be used like insurance for your options.
There are different types of options, called American and European, which you should familiarize yourself with before jumping into. Short-term, long-term, and exotic are also a few other types of options.