Difference Between Options And Futures
- 17th July 2025
- 10:30:00 AM
- 7 min read
In recent years, the futures and options (F&O) have gained massive popularity in India. As of September 2024, retail investors have invested an average of INR 26,000 per person on F&O transactions in the last 3 years.
Both of them can help you manage future market risks by making investments at predetermined prices. But which strategy fits your budget, risk profile, and investment strategy?
This blog clears your confusion by comparing options vs futures, which may help you choose one of these two derivative contracts according to your needs and risk tolerance.
Understanding Options and Futures With Examples
Brokerages and exchanges in India have received INR 50,000 crore in the last three years for F&O trading. This creates an urgency to know how you can benefit from investing in these investments.
What is an Options Contract?
In terms of options, you can exercise at any time before the expiry. For instance, you buy a call option for purchasing 100 shares of company X at INR 3000 per share with a premium paid of INR 100 per share. If the price increases up to INR 3100, you can exercise the option and earn a profit of INR 100 per share. Your total profit will be:
100 shares x INR 100 premium = INR 10000
If the price drops to INR 2900, you may not choose to exercise the option and incur the loss of the premium paid, which is INR 10000.
What is a Future Contract?
A futures contract allows you to trade an underlying asset on a specific date mentioned in the contract. For instance, you enter into a future contract to purchase 100 shares of company Y at INR 1000 per share, and it expires after one month.
If the market price increases up to INR 1100, you earn a profit of INR 100 per share, which is INR 10,000. If the price falls to INR 900, you will incur a loss of INR 10,000 (1000-900).
Difference Between Options and Futures
Before you know the comparison options vs futures which is better for you, you must know the basic differences between these two derivative contracts, which are highlighted in the table below:
| Parameters | Options | Futures |
| Meaning | Options contracts give investors the right, but not the obligation, to buy or sell an asset at a set price before expiry. Call options allow buying, while put options allow selling, depending on market expectations and strategy. | Futures contracts are contracts to trade an underlying asset at a predetermined price at a future date. |
| Profitability | While it lessens the probability of loss, it might bring you limitless profit or loss. | It could generate an unlimited amount of profit and loss. |
| Risk | Subject to limited risk. | Subject to higher risks. |
| Advance Payment | In an options contract, you must pay a premium, which gives you the chance to stay away from purchasing the asset in the future if it becomes unattractive. | You do not have to pay any upfront cost in a futures contract. You only have to pay the asset’s final agreed-upon price. |
| Contract Execution | The buyer may sign an options contract at any time before the expiration date. | A futures contract is executed on the predetermined date. |
Options vs Futures – Which is Better?
While investing in F&O, you must be very careful, as many Indians have lost their money by not understanding which is better for them. In the 3 years between FY22 and FY24, 93% of more than 1 crore individual traders lost money in F&O. You must choose between options vs futures based on the factors of your risk profile, investment strategy, and flexibility:
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Risk Profile
If you have a higher risk profile, you can invest in futures. Futures contracts involve higher risks because daily margin calls are required, and profits and losses are infinite. Contrarily, options limit the loss to the premium, which makes them safer for conservative investors. If you are one of them, you can easily choose options and get exposure to market movements without having to risk your whole investment.
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Investment Strategy
While options demand a premium that may be substantial based on volatility and time to expiry, futures usually have fewer upfront fees because you merely need to deposit margin money.
In addition, if you want more complex strategies, you must invest in options. You can create strategies like straddles, spreads, or covered calls for income generation. However, if you are confident in directional moves, choose a futures contract. It can help you manage daily market-to-market movements.
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Flexibility
Options allow you to create transactions with different risk and reward profiles. This can provide you with more strategic flexibility. If you prioritise simplicity, then choose futures, but it can lack strategic diversity.
Futures and Options Difference Based on Value
Since options move in tandem with futures contracts, the value of futures contracts moves more quickly than options contracts.
This amount might be as much as 50% for at-the-money options and as little as 10% for deep out-of-the-money options. Over time, the option value may continuously decline, but you do not have to worry about it.
Options vs Futures Difference Based on Capital
Since you have to manage daily mark-to-market settlements and have a margin account, futures contracts often need a larger capital commitment. On the other hand, options contracts demand less money up front, and you need to pay only a one-time premium while buying.
However, the premium is non-refundable, and your maximum loss will occur if the market moves negatively.
Final Thoughts
The above comparison of options vs futures helps you to do so. Futures can be the best option for you if you are seeking a high-risk and high-reward strategy and do not mind a lot of exposure. However, options can be a better option if you value flexibility and small losses.
Download the PL Capital Group – Prabhudas Lilladher application and open a trading account for free! Using the PL capital application, you can easily trade F&O with live market updates.
Frequently Asked Questions
1. Which has more leverage options or futures?
Futures contracts are fungible, and you can benefit from trading futures as you may employ more leverage with futures compared to options. A futures market is also more liquid, which contributes to the comparatively lower spreads.
2. Which is a safer future or option?
Both options and futures pose risks to the investors. Options are considered as more safer than futures because they involve limited losses. The futures carry higher risk since both parties are obliged to fulfil the contract.
3. Futures or options: Which is more profitable?
Buying an options contract is preferable to buying a futures contract since it involves fewer risks. However, both have different features and are useful for different investment strategies.
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
