Options and forwards are both contracts between a buyer and a seller in the stock market. With forwards, there is no upfront payment. Both the buyer and the seller create a contract to trade an asset in the future at a set price agreed upon at the time of the contract and both are then obligated to participate in the trade no matter what the outcome.Sign up to receive daily headline news from Ottawa Citizen, a division of Postmedia Network Inc.
The buyer of an option has the right, to either buy or sell a stock, sometime in the future at a strike price that is always agreed upon at the time the position is opened. The seller, on the other hand must sell or complete the transaction if the option is exercised. The allure of option trading is quite real with many people gravitating to this platform because it can be very exciting. Let’s look at an example together. If you had a favourite stock that you believed would go up in value over the next few weeks, you could buy a call option.