Why would any firm or individual hedge risk with futures, which limit both losses and gains, when they could use options which only limit losses?
A)Because with options, parties have both rights and obligations
B)Because options cost very little
C)Because futures cost very little
D)Because with futures, one party only has rights while the other only has obligations

Question

Quizplus · Accepted Answer

Futures contracts typically have lower upfront costs compared to options, making them a cost-effective way for firms or individuals to hedge risk. Options usually involve a premium that the buyer must pay upfront, which can be significant depending on the contract.

Why Would Any Firm or Individual Hedge Risk with Futures