Futures option in Stock market trade is an option contract where the principal is a single futures contract. It is a uniformed contract which provides the delivery of a specific quantity of product at some time in the future at a predetermined price. A trader of the future option contract has the choice to assume a particular future position at a strike price, any time before the expiry of the option.
When a futures contract is opened, the futures exchange states a minimum amount, i.e. 5 percent to 10 percent of the future contract, which the trader is to deposit in his account, that is called the initial margin. When the contract is liquidated, the initial margin is refunded besides getting the plus or minus gains or losses that happen at the time of futures contract.
The futures options generally expires at the end of the month that proceeds the delivery month of the underlying futures contract. The strike price is the price at which the futures position will be opened in the trading accounts of both the buyer and the seller if the futures option is exercised.
The Futures contracts are traded in futures exchanges globally and it covers a variety of choice of commodities like as agriculture products, livestock, energy, metals and financial products such as market indices, interest rates and currencies.