I am currently studying different types of option-related derivatives and I am quite confused about the notion of “futures options”.
My textbook says that
A futures option is the right, but not the obligation, to enter into a futures contract at a certain futures price by a certain date.
My interpretation is that the difference between a futures option and a stock option is that the underlying asset now becomes the futures contract, instead of the stock. However, according to the main characteristics of a futures contract,
it costs a trader nothing (except possibly for margin requirements) to enter into a futures contract.
Therefore, what is meant by a “futures price”? A future should be a free contract under which the buyer must buy/sell an asset at a predetermined strike price in the future.
I am confused. Any ideas?