What are the similarities and differences between an exchange traded option and a futures contract?
Although options and futures are completely different securities, there are some similarities. One similarity is the standardized terms. A standard, exchange traded equity option, calls for the delivery of 100 shares of stock. A single standardized futures contract, for example, may call for delivery of a certain quantity and quality of a particular commodity (oil, wheat, corn, etc.) or a certain number of currency units for foreign currency futures. Another similarity is the standardized expirations – although the expiration dates may differ. Lastly, centralized clearinghouses guarantee futures and option contracts. This makes counterparty risk — the risk that the other party will default on the terms of the trade — nearly obsolete.
