Finance - Options & Futures

Options & Futures


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Options and futures provide sophisticated investors with the opportunity to gamble on the stock market - without risking all their capital. However the risk element is high due to the fluctuations in the market and these investment vehicles should only form a small part of an aggressive portfolio.

Options provide the right to buy or sell a share at a fixed price within a specified period. A fee is paid for the option, which is known as the premium. If the share price rises above the fixed price, the option holder will be able to buy the share at the fixed price and a profit can be made. If the share price is lower than the fixed price, the holder can allow the option to lapse, but at the loss of the premium paid for the option.

A future is similar in principle, but unlike options the right to buy or sell must be exercised on a specified date. There is no facility to lapse the contract.