what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50

62 0

UNLOCK FULL SOLUTION $1.97

Get solution in 10 Seconds

what is the difference between a) entering into a long futures contract when the price is 50 and b)taking a long position in a call option with a strike price of 50

EXPERT ANSWER

In case of a futures contract when the price is below 50 the long position would incur a loss of 50 – spot price.

However in case of a call option any price below 50 would mean that the option expires worthless and there is no payoff,

However in case of a call option a premium needs to be paid but in case of a futures contract no premium is paid to enter the contract