The main advantage of using options on futures contracts rather than the futures contracts themselves is that ________.
A) interest rate risk is controlled while preserving the possibility of gains
B) interest rate risk is controlled, while removing the possibility of losses
C) interest rate risk is not controlled, but the possibility of gains is preserved
D) interest rate risk is not controlled, but the possibility of gains is lost

Question

Quizplus · Accepted Answer

Options on futures contracts allow the holder to control interest rate risk while preserving the possibility of gains. This is because options provide the right, but not the obligation, to buy or sell a futures contract at a specific price at a specific time. This allows the holder to limit their risk exposure while still being able to benefit from price movements in the futures market. In contrast, futures contracts do not provide this flexibility and therefore do not allow for as much risk management.

The Main Advantage of Using Options on Futures Contracts Rather