Features of the Derivative Contract

The following are the Features of the Derivative Contract –

1. Positions of the traders – Parties can either take the Long Position or the Short Position. The Long agrees to buy the underlying and the short agrees to sell the underlying.
2. Size and Price of Derivative Contracts – The contract must also specify size and price. The size is the amount of the underlying to be exchanged. The price is what the underlying will be purchased or sold for under the terms of the contract. The price specified in the contract may be called the exercise price or the strike price. Note that the price specified in the contract is not the current or spot price for the underlying but a price that is good for future delivery.
3. Expiration Date – All derivatives have a finite life; each contract specifies a date on which the contract ends, called the expiration date.