In order to understand options, it is necessary to understand the basics of some related financial instruments: forward and futures contracts.

Forward contracts, futures and options contracts all have one thing in common:They are related to a future date.

For transactions entered into on the spot market, one takes delivery and makes payment for the asset within two business days of the contract entry date. Forward and futures contracts are agreements to purchase or sell a given amount of a specified asset, calling for delivery and payment at a specified date in the future. The price to be paid is agreed upon when the contract is made.