A primary advantage of options on futures versus futures for hedging is that the maximum possible loss for options is the premium cost, since an option does not have to be exercised.

Question

Quizplus · Accepted Answer

Options on futures allow for limited risk, as the maximum loss is the premium paid for the option. If the futures price moves in the opposite direction, the option holder can simply let the option expire and only lose the premium paid, whereas with a futures contract, the losses can be unlimited.

A Primary Advantage of Options on Futures Versus Futures for Hedging