Comparing an option to a futures contract it would be correct to say:
A) the risk involved in each is equal.
B) a futures contract carries more risk than the option contract.
C) an option contract carries more risk than the futures contract.
D) neither involves risk; they are tools to eliminate risk.

Question

Quizplus · Accepted Answer

Futures contracts carry more risk than option contracts because they are legally binding agreements to buy or sell an underlying asset at a specific price and time in the future. This means that the trader is obligated to fulfill the terms of the contract, regardless of market conditions. In contrast, option contracts give the holder the right, but not the obligation, to buy or sell the underlying asset at a specific price and time in the future. This gives the trader more flexibility and less risk.

Comparing an Option to a Futures Contract It Would Be