Discuss whether the following statement is true or false:
Buying a call option on a portfolio of common stocks is the same as buying a futures contract on the same portfolio.

Question

Quizplus · Accepted Answer

Payoff on a long call option position is different from that of a long position in a futures contract.Call option gives a buyer the right but not an obligation to purchase a security at a pre-determined price.The buyer pays a premium to purchase this right and exercises the option only if the spot prices rise above the strike price.If the price for the underlying falls,the buyer can simply chose not to exercise the contract.The maximum loss in this case is the premium amount paid.The payoff in case of futures contract is directly proportional to the change in the underlying asset's prices.If the spot price falls,futures price will also fall simultaneously and the buyer of the futures contract will suffer losses to the extent of the fall.Upside potential,however,in both the contracts remain same theoretically

Discuss Whether the Following Statement Is True or False