Risk Profiles of Futures vs Options Contracts

Very Hard Derivative Markets And Instruments Exchange-traded Derivatives

In the context of exchange-traded derivatives, consider two traders: Trader X and Trader Y. Trader X participates in a futures contract for crude oil, while Trader Y engages in a options contract for the same asset. Both derivatives are listed on a major exchange. Assume that the market is efficient, and the contracts are marked to market daily. Which of the following statements most accurately reflects the fundamental differences between the risk profiles associated with these contracts?

Trader X is exposed to unlimited profit potential and limited loss potential, while Trader Y has limited profit potential and unlimited loss potential.

Trader X faces limited profit potential and margin calls, while Trader Y is at risk of loss only if the market price exceeds the strike price.

Trader X has a defined obligation to purchase the underlying asset, whereas Trader Y has the right, but not the obligation, to purchase the underlying asset.

Hint

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