Futures vs Options

ZBZB · Sep 20, 2022

OP is showing their age by mentioning OEX which used to be a liquid
Options contract.

TheDawn · Sep 20, 2022

KGTrader4 said:
Not necessarily, use of /ES could be speculation rather than hedging.
I’m learning about futures, and that’s why I posted it here, the focus of my question was futures. The use of OEX , I don’t know where that came from, I used to trade OEX options decades ago, so it’s the first thing I thought of.

let me rephrase, what’s the point of using futures if you get similar leverage and volatility with futures. Whether it’s QQQ OPTIONS VS /NQ or SPY options vs /ES

Futures has no theta; it has no decay of value. Its value stays forever fresh until expiration unlike options that as soon as you buy it it starts to lose value.

That's one difference I can think of.

vincentnyc · Sep 20, 2022

also i heard there is no wash/sell rule for trading futes. meaning you if u got a loser on day 1 on trading futes, you don't have to wait for the 30 days windows to close in order to trade again due to wash/sale rule. not sure about options.

KGTrader4 · Sep 20, 2022

smallfil said:
What read about futures is you can lose more monies than you invested or put in a trade. That is why I do not trade futures. The same goes with forex. Leverage works against you by a factor of 10. With a stock option, your maximum risk on a worst case scenario is to lose the cost of the premium, say $500.00 you used to buy a call or put option. Still, nothing prevents you from exiting and closing a losing options trade. So, you can sell when you have lost $200.00 and have $300.00 left in value for that option for the next trade. If you are correct and the stock moves a huge amount, you have the power of leverage and 100% or greater returns on that trade is possible.

correct me if I am wrong… my understanding is if you by (or short) futures, and you get a margin call, you can just not meet the margin call and they’ll sell you out, so you CAN Limit your loss to what you put in. No?

KGTrader4 · Sep 20, 2022

TheDawn said:
Futures has no theta; it has no decay of value. Its value stays forever fresh until expiration unlike options that as soon as you buy it it starts to lose value. Is put there a time value in the price of the future that decays as you get closer to expiration?

That's one difference I can think of.

futures expire every 3 months how is that not an Expiration, which means you will have time decay. Not debating, just trying to learn

TheDawn · Sep 20, 2022

KGTrader4 said:
futures expire every 3 months how is that not an Expiration, which means you will have time decay. Not debating, just trying to learn

What I mean by no time decay is that the price will not deteriorate just because it's getting closer to expiration with everything else the same. Whereas with options, with everything else remaining the same, the price will decrease as it gets closer to expiration. That's the difference.

KGTrader4 · Sep 20, 2022

TheDawn said:
What I mean by no time decay is that the price will not deteriorate just because it's getting closer to expiration with everything else the same. Whereas with options, with everything else remaining the same, the price will decrease as it gets closer to expiration. That's the difference.

ok, so what you are saying, is if for exa,ple, I buy a futures contract today, /ES, /NQ, /MES, whatever, I’m going to basically pay the value of the underlying index, there won’t be a time premium, as in options, correct?

I actually just looked at /MES and SPX and the difference is minuscule , so I’m guessing that’s a correct statement?

TheDawn · Sep 20, 2022

KGTrader4 said:
ok, so what you are saying, is if for exa,ple, I buy a futures contract today, /ES, /NQ, /MES, whatever, I’m going to basically pay the value of the underlying index, there won’t be a time premium, as in options, correct?

I actually just looked at /MES and SPX and the difference is minuscule , so I’m guessing that’s a correct statement?

There shouldn't be any time premium like in options for futures no because futures is a totally different asset and is priced differently as the volatility for the futures is not a function of time unlike options.

smallfil · Sep 20, 2022

KGTrader4 said:
correct me if I am wrong… my understanding is if you by (or short) futures, and you get a margin call, you can just not meet the margin call and they’ll sell you out, so you CAN Limit your loss to what you put in. No?

Not really sure that is what happens as I have never traded futures. Maybe. I was referring to the leverage part of futures where your losses are not capped at all. If so, like shorting stocks by borrowing the shares? Your risk to the upside is unlimited? A put option would limit your losses even if the stock gaps up to the cost of the premium and that is at the worst case scenario already.

smallfil · Sep 20, 2022

KGTrader4 said:
correct me if I am wrong… my understanding is if you by (or short) futures, and you get a margin call, you can just not meet the margin call and they’ll sell you out, so you CAN Limit your loss to what you put in. No?

This information is from Investopedia.com. I was right about the leverage that makes trading futures riskier. What if your futures position moves against you by a huge amount? Even if your broker closes your position, you could be sitting on huge losses which are now locked in. So, I was right about the leverage in futures being highly risk as compared to trading stock options.

https://www.investopedia.com/ask/answers/031015/how-risky-are-futures.asp