<p>Options on Futures are financial derivatives that combine features of both options and futures contracts. They allow investors to speculate on or hedge against the price movements of underlying futures contracts.</p>

<h2>How It Works</h2>
<p>Options on Futures give the holder the right, but not the obligation, to buy (call) or sell (put) a futures contract at a predetermined price (strike price) on or before a specified date (expiration date). Here's how they work:</p>
<ul>
  <li><strong>Underlying Futures Contract:</strong> Options on Futures are based on a specific futures contract, such as commodities, currencies, or financial instruments.</li>
  <li><strong>Premium:</strong> Investors pay a premium to purchase an options contract, which is the price they pay for the right to exercise the option.</li>
  <li><strong>Exercise:</strong> If the holder believes the futures price will move in their favor, they can exercise the option, buying or selling the underlying futures contract at the strike price.</li>
  <li><strong>Expiration:</strong> Options on Futures have an expiration date. If not exercised before expiration, the option becomes worthless.</li>
</ul>

<h2>Why It Matters</h2>
<p>Options on Futures serve two primary purposes: speculation and hedging. Here's an example:</p>
<p><strong>Speculation:</strong> An investor believes that the price of gold will rise in the next three months. They buy a call option on a gold futures contract. If the gold price increases, the investor can exercise the option, buying the gold futures contract at the lower strike price, and then sell it at the higher market price for a profit.</p>
<p><strong>Hedging:</strong> A gold miner wants to protect against a potential drop in gold prices. They buy a put option on a gold futures contract. If the gold price falls, the miner can exercise the option, selling the gold futures contract at the higher strike price, limiting their losses.</p>