What is the core premise of a futures contract?

"Buyers and sellers agree to get into a contract today at a pre-decided price and quantity, with the actual exchange of goods happening at a future date." "Buyers and sellers agree to exchange goods today at a pre-decided price and quantity." "Buyers and sellers agree to exchange goods at a future date at a price determined on that date." "Buyers and sellers agree to get into a contract today for a pre-decided quantity, with the price determined at a future date."

Why do futures contracts attract margins?

"To protect the exchange from potential losses due to price fluctuations." "To ensure both buyers and sellers have a financial stake in the contract, mitigating default risk." "To cover the cost of facilitating the futures contract." "To generate revenue for the exchange."

What is the maximum risk for an option buyer?

"The premium paid for the option." "The strike price of the option." "The difference between the strike price and the current market price." "Unlimited, as the price of the underlying asset can fluctuate significantly."

Why is there no mark-to-market (M2M) for options?

"Options are less volatile than futures, making M2M unnecessary." "Only the option seller faces open-ended risk, while the buyer's risk is limited to the premium paid." "Options contracts are typically short-term, reducing the need for daily M2M adjustments." "The exchange does not have the infrastructure to handle M2M for options."

How are profits and losses settled in options contracts that are closed before expiry?

"Based on the difference between the buying and selling price of the premium, multiplied by the lot size and number of lots." "Based on the difference between the strike price and the current market price at the time of closing the position." "Based on a complex formula that takes into account volatility, time decay, and other factors." "Profits and losses are not settled until the expiry date of the option."

What happens when an In-the-Money (ITM) option is held until expiry?

"The option is automatically exercised, and the buyer or seller is obligated to fulfill the contract terms." "The option expires worthless, and both the buyer and seller lose their premium." "The option is rolled over to the next expiry date." "The exchange decides whether to exercise the option based on market conditions."