FIVE ADVANTAGES OF FUTURES OVER OPTIONS

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Futures and options are both derivative instruments, meaning they derive their value from an underlying asset or instrument. Both futures and options have their own pros and cons. One of the benefits of options is obvious. An option contract gives the contract buyer the right, but not the obligation, to buy or sell an asset or financial instrument at a fixed price on or before a predetermined future month. This means that the maximum risk for the buyer of an option is limited to the premium paid. But futures have some key advantages over options. A futures contract is a binding agreement between a buyer and a seller to buy or sell an asset or financial instrument at a specified price in a predetermined month in the future. While not for everyone, they work well for certain investments and certain types of investors.
1. Fruitful investment
futures may not be the best way to trade stocks, but they are a great way to trade specific assets, such as commodities, currencies, and indices. Their standardized features and very high leverage make them particularly useful for the risk-tolerant retail investor. The high level of leverage allows these investors to participate in markets they might otherwise not have had access to.
2. Fixed upfront trading costs
The margin requirements for major commodity and currency futures are well known as they have been relatively unchanged for years. Margin requirements may be temporarily increased when an asset is particularly volatile, but in most cases they remain the same from one year to the next. This means that a trader knows in advance how much initial margin to put down. On the other hand, the option premium paid by an option buyer can vary significantly depending on the volatility of the underlying asset and the broader market. The more volatile the underlying asset or broad market, the higher the premium to be paid by the option buyer.
3. No time decay
this is a key advantage of futures over options. Options waste assets, which means their value decreases over time - a phenomenon known as time decay. A number of factors affect an options expiration time, one of the most important being the time to expiration. An options trader needs to watch out for the lapse of time as it can severely affect the profitability of an options position or turn a winning position into a losing position. Futures, on the other hand, don't struggle with time lapse.

4. Liquidity
this is another major benefit of futures over options. Most futures markets are very deep and liquid, especially in the most commonly traded commodities, currencies and indices. This results in tight bid-ask spreads and gives traders the confidence to enter and exit positions as needed. Options, on the other hand, may not always have sufficient liquidity, particularly for options that are far from the strike price or expire far into the future.
5. Straightforward pricing
futures prices are intuitively easy to understand. Under the cost-of-carry pricing model, the futures price should be the same as the current spot price plus the cost of holding (or storing) the underlying asset until the futures contract expires. If spot and futures prices are not aligned, arbitrage activity would occur and offset the imbalance. Options pricing, on the other hand, is generally based on the black-scholes model, which uses a number of inputs and is notoriously difficult to understand for the average investor.