Present market condition of the world is not good. So, Traders prefer options than the futures because in the case of future, there is an unlimited upside and downside for both buyers and sellers.
Example of nifty
Activity in index futures has hit a near six-year low in August as fewer derivatives traders are using Nifty futures to bet on the benchmark these days.
You can understand it better from the difference between futures and options
ü In case of future contract there is an agreement to buy or sell a specified quantity of an underlying asst on a price agreed upon by the buyer and seller on or before a specified time and obligation to buy or sell a specified quantity of underlying asset does exist where as in the case of option the buyer of an option enjoys the right but not the obligation to buy and sell the underlying asset.
ü In case of future contract there is unlimited upside & downside for both buyer and seller where as there is a limited downside and unlimited upside for the buyer. For the seller the profits are limited where as losses are unlimited
ü In case of futures contract prices are affected primarily on the basis of the price of underlying asset whereas in the case of options the price is affected by
· Price of underlying asset
· Time remaining for expiry of the contract
· Volatility of underlying asset
As the price of option is affected by more factors so, the risk is also low in this.
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