Performance Perspectives Blog

Options are Physical Securities!

by | Apr 28, 2011

There are several ways that options differ from futures contracts. One of those ways in which they differ is that options are securities that must be acquired in exchange for physical cash. By contrast, in acquiring a futures contract position, one does not need to pay cash – they only obligate themselves to ultimately pay the cash value of the futures position at contract expiration.

Options contracts may be exchange listed or over-the-counter (OTC) – but in either case, they trade at some price. The cost basis of the option contract must then be deducted from physical cash at the time option positions are acquired. This is an important point to keep in mind when dealing with options at the CIPM Expert Level – your return calculations will not be correct unless you remember to reduce portfolio cash by the cost basis of the options traded.

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