Which of the following statements about futures options is correct?

The statement that the buyer has the right but not the obligation to exercise is correct. This defines the fundamental characteristic of options, including futures options. When a buyer purchases a futures option, they obtain the right to buy or sell the underlying futures contract at a predetermined strike price before a specified expiration date. This right gives the buyer flexibility, allowing them to decide whether to exercise the option based on market conditions, without the obligation to do so.

In contrast, once the buyer decides not to exercise the option, they can simply let it expire, thereby limiting their potential loss to the premium paid for the option. This differentiation between options and other financial instruments, such as futures contracts, where both parties have an obligation to fulfill the contract's terms, is critical in understanding how options function in financial markets.

The other statements fall short of accurately conveying how futures options operate. The first statement incorrectly suggests that the buyer must exercise the contract, which is not true since the buyer has the choice. The second statement inaccurately implies that the seller can modify the strike price after the contract is established, which is not allowed. Lastly, the assertion that these options can only be traded on the stock market is misleading, as futures options can be traded on various exchanges