Why might a financial manager prefer using option contracts instead of futures or forward contracts to hedge?

Question

Quizplus · Accepted Answer

Option contracts provide the financial manager with protection against adverse price movements, while still allowing them to benefit from favorable price movements. Futures and forwards require a premium to be paid upfront and create an obligation to perform, while options do not have this obligation. All three instruments have default risk, but futures and forwards may have greater default risk than options.

Why Might a Financial Manager Prefer Using Option Contracts Instead