Here’s how an airline company might use futures. Imagine Jet Blue Airlines needs a certain amount of oil for their flights in the next 6 months. They are tired of the constant ups and downs of the oil prices so they decide to make an agreement (futures contract) to buy oil 6 months from now at a certain price. Let’s say that that price is $100 per barrel currently. If oil costs $200 a barrel in 6 months, they just saved themselves $100 a barrel. Even if oil is worth $10 a barrel in 6 months, they are still forced to buy the oil for $100 a barrel. That’s one of the key differences between futures and options. For futures, you are forced to execute your contract no matter what happens to the price.
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