Options on futures

Options on futures are financial contracts that give traders the right, but not the obligation, to buy or sell a futures contract at a specific price before a set date. Think of it as a security giving you the choice to lock in a price for an asset, like oil or wheat, without committing immediately. If market prices move favorably, you can exercise the option; if not, you can let it expire, limiting potential losses to the premium paid. This instrument helps manage risk and strategically participate in price movements of commodities or financial assets.