Series VIIIEasyFutures Contracts

The buyer (long position) of a futures contract has:

ANo obligation because futures can always be cash-settled at a profit
BThe right but not the obligation to buy the underlying
CThe obligation to buy the underlying at the agreed price on expirycheck_circle
DThe obligation to pay a premium to the seller

Correct answer

C. The obligation to buy the underlying at the agreed price on expiry

lightbulbDetailed Solution

A futures contract is a firm commitment. The long is obligated to buy (and the short to sell) the underlying at the agreed futures price on expiry. Unlike options, there is no premium and no choice — both parties are bound, though positions are usually squared off before expiry.

Reference: NISM Series VIII Equity Derivatives, Chapter 2.

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