The main reason to buy an option on a futures contract rather than buying the futures contract is ________.
A) to reduce transaction cost
B) to preserve the possibility for gains
C) to limit losses
D) to remove the possibility for gains

Question

Quizplus · Accepted Answer

Buying an option on a futures contract allows the buyer to preserve the possibility for gains while limiting potential losses, as opposed to simply buying the futures contract which would expose the buyer to potentially significant losses if the market moves against them. It may also offer some cost savings relative to the outright purchase of a futures contract. Therefore, the best choice is B.

The Main Reason to Buy an Option on a Futures