Options and futures are derivatives which mean that their values are derived from other financial instrument like stock. They are known as the most complicated financial instrument in the world.
Option is more complicated than futures. There is a formula on pricing options, so you can actually know weather an option is overvalue or undervalue. For me option is more interesting and challenging.
Both of them are contracts which act like an insurance against future price change. It can protect us from price drop and price hike. If you want to be able to sell stock XYZ at $ 50 you can buy a put option at $ 50. If the stock drops to $ 40, you can still sell it at $ 50. That is $ 10 profit. If you are a corn flakes producer, you need to buy corn to make corn flakes. So to insure that you have corn supply with current price, you need to buy corn futures at current price.
Both of them are contracts which act like an insurance against future price change. It can protect us from price drop and price hike. If you want to be able to sell stock XYZ at $ 50 you can buy a put option at $ 50. If the stock drops to $ 40, you can still sell it at $ 50. That is $ 10 profit. If you are a corn flakes producer, you need to buy corn to make corn flakes. So to insure that you have corn supply with current price, you need to buy corn futures at current price.
