Comparing an option to a futures contract it would be correct to say:
A)The risk involved in each is equal.
B)A futures contract carries more risk than the option contract.
C)An option contract carries more risk than the futures contract.
D)Neither involves risk; they are tools to eliminate risk.

Question

Quizplus · Accepted Answer

A futures contract carries more risk than an option contract because a futures contract is an obligation to buy or sell an underlying asset at a set price on a specific date, whereas an option contract gives the holder the right but not the obligation to buy or sell the underlying asset at a set price. Futures contracts have unlimited downside risk and margin calls that can require additional capital to be added to the account. Option contracts have a limited downside risk of the premium paid for the contract.

Comparing an Option to a Futures Contract It Would Be