Describe the Similarities and Differences Between Options and Futures

question 105

Essay

Describe the similarities and differences between options and futures.

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Definitions:

Predictable Cash Flows

Cash flows that can be reasonably forecasted or estimated based on historical data and expected future events, providing a measure of financial stability.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to buy an asset at a specified price within a specified time frame.

Speculative Investment

An investment with a high degree of risk, where the investor anticipates significant returns in exchange for the risk of losing most or all of the invested amount.

GAAP Accounting

Generally Accepted Accounting Principles, a set of rules and standards for financial reporting and accounting practices in the United States.