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The Curious Bag
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Futures represent a contract to buy and or sell an asset at a preset price and a predetermined date some time in the future. Options on futures make up a subset of the futures trading strategy.
Futures
Futures trade on the Chicago Mercantile Exchange (CME). Futures contracts obligate the buyer or seller of the contract to deliver the underlying asset in physical form or in cash on a future date.
Underlying asset
Futures contracts exist on many physical goods such as coffee, sugar and orange juice, plus on many financial instruments, such as foreign currency.
Options on futures
While the futures contract obligates the holder to deliver the asset at a fixed price and date in the future, options only give the option holder the right not an obligation to buy or sell the asset at some point in the future.
Knowledge
Using a futures and option trading strategy requires in-depth knowledge of the commodities traded. The trader must possess a good understanding of what causes commodity prices to rise and fall.
Risk
Futures and options trading involve high risk. Not only can the trader lose the initial margin amount invested, but also all monies in her account plus more stand at risk.
Source:
Investopedia.com: Terms - Options
Lectlaw.com: Understanding and manaing the risk of futures trading
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