Options on futures are derivative contracts where the underlying asset is a futures contract rather than a stock or ETF. They offer leveraged exposure to commodities, equity indices, interest rates, and currencies with defined risk and nearly 24-hour trading access. This article explains how options on futures work, key contract specifications, the available product sectors, and the tax treatment that distinguishes them from equity options.
What Are Options on Futures?
Options on futures give the holder the right—but not the obligation—to buy or sell a specific futures contract at a designated strike price before expiration. Each contract has a strike price and expiration date, just like equity options, and both are priced using options pricing models.
The key structural difference is settlement. Equity options expire to the underlying stock or ETF. Depending on the product, options on futures expire either to cash or to the underlying futures contract itself, which in turn settles to cash or a physical commodity. This chain matters: when trading options on /ES (E-mini S&P 500), for example, the option settles to the /ES futures contract, not to the S&P 500 index directly.
One of the most important mechanics for active traders: different options expirations can settle to different futures contract months. The /CL (Crude Oil) options chain, for instance, contains expirations that settle to /CLJ5, /CLK5, and other monthly contracts—each with its own price. Knowing which options expiration links to which underlying futures contract is essential before placing a trade.
Options on Futures vs. Equity Options
Traders with experience in equity options will recognize the mechanics, but several meaningful differences apply.
Options on Futures | Equity Options | |
|---|---|---|
Underlying asset | Futures contract | Stock or ETF |
Settlement | Cash or physical delivery via futures | Stock delivery or cash |
Trading hours | Nearly 24 hours, Sunday-Friday | Regular market hours (extended for some) |
Margin type | SPAN margin | Reg-T or portfolio margin |
Contract size | Varies by futures product | 100 shares per contract |
Expiration risk | Possible delivery of futures contract | Possible stock assignment |
Options on Futures | |
|---|---|
Underlying asset | Futures contract |
Settlement | Cash or physical delivery via futures |
Trading hours | Nearly 24 hours, Sunday-Friday |
Margin type | SPAN margin |
Contract size | Varies by futures product |
Expiration risk | Possible delivery of futures contract |
Equity Options | |
|---|---|
Underlying asset | Stock or ETF |
Settlement | Stock delivery or cash |
Trading hours | Regular market hours (extended for some) |
Margin type | Reg-T or portfolio margin |
Contract size | 100 shares per contract |
Expiration risk | Possible stock assignment |
Leverage and Risk Profile
Buying a futures option limits total risk to the premium paid—the same defined-risk profile as a long equity option. However, the notional value controlled per contract is substantially larger in many futures products. A single /ES option, for example, controls exposure to 50x the S&P 500 index value. Losing 100% of the premium is more probable with long options on futures than with the outright futures contract, because the option only needs to expire out-of-the-money.
Selling options on futures can be done for significantly less capital than owning or shorting the futures contract outright. The notional risk beyond the strike is the same, but the buying power required at entry is lower. Short options on futures carry the same theoretically large risk profile as short equity options: losses beyond the strike are uncapped for naked short calls.
Available Product Sectors
Options on futures are available across a broad range of product sectors, enabling portfolio exposure that equity options alone cannot provide.
- Equity Index Futures Options
- Energy Futures Options
- Precious Metals Futures Options
- Interest Rate Futures Options
- Agricultural Futures Options
- Currency Futures Options
- Cryptocurrency Futures Options
- Livestock Futures Options
Fees for Trading Options on Futures
tastytrade charges $1.25 per contract to open options on futures, and $1.25 per contract to close. Micro futures options are $0.75 per contract to open and $0.75 to close.
For comparison, the underlying futures contracts themselves are $1 per contract to open and $1 to close on tastytrade. There are no platform fees, no inactivity fees, and no data fees for standard market access for non-professional subscribers.
See full pricing and fees for a complete schedule including futures and futures options.
FAQs
Settlement depends on the underlying futures contract. Equity index futures options (ES, NQ, RTY) typically settle to cash. Commodity futures options (crude oil, gold, wheat) can result in delivery of the underlying futures contract, which itself may lead to physical delivery if held through expiration. tastytrade does not allow for physical delivery. Verify settlement for each product before holding positions near expiration.
Both are derivative contracts with strike prices and expirations, and both are priced using an updated version of the Black-Scholes model. The primary differences are: options on futures settle to a futures contract (not a stock) or directly to cash; they trade nearly 24 hours a day; and they are margined using SPAN rather than Reg-T. Notional contract sizes also differ significantly across futures products.
Options on futures use SPAN margin, and required margin varies by product and strategy. A futures account with The Works trading level is required on tastytrade. IRA accounts require IRA The Works.
Yes, futures options trading is available in IRA accounts on tastytrade with the IRA The Works approval level. Not all strategies are available in IRAs; undefined-risk strategies require additional approval and may be subject to restrictions.
See the full product list of products here.
This content, including the use of actual symbols, any visual display or other reference to product, type of investment, strategy, or service offered, is for educational purposes only. It is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person. You are solely responsible for making your own investment and trading decisions and for evaluating relevant factors, including their investment experience, objectives, financial situation, and risk tolerance prior to trading.
Options involve risk and are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially significant losses. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.
Futures accounts are not protected by the Securities Investor Protection Corporation (SIPC). All customer futures accounts' positions and cash balances are segregated by Apex Clearing Corporation. Futures and futures options trading is speculative and is not suitable for all investors. Please read the Futures & Exchange-Traded Options Risk Disclosure Statement prior to trading futures products.
Multi-leg option strategies incur higher transaction costs as they involve multiple commission charges.