Futures and Forwards versus Options

CFA Level III
#1

Below from FinQuiz R27 note…could someone help me understand this? Why future/ forward is fully leverage but option isn’t?

  • Many organizations are not permitted to use futures or forwards because they represent fully leveraged positions. These firms can use options, which are not fully leveraged.
#2

If you buy an option you have to put up 100% cash. Fut & fwd you can buy on margin.

#3

I would suspect it’s because of the up front premium paid for the option contracts whereas the futures are assumed to be collateralized and forwards are otc with a notional principal and nothing paid up front. There’s probably a better answer out there though.

#4

Long Options: you buy the right to exercise.

futures: you’re buying the futures contract against a delayed payment.