Which of the following is true of investors using options to manage risk? A. Investors can hedge against a price decline by buying a call option. B. Investors can hedge against a price decline by buying a put option. C. Options suffer a loss if the value of the asset moves in the opposite direction of that being hedged against. D. Options are less expensive than other hedging devices.

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Business

Mclaughlin

9 December, 05:58

Which of the following is true of investors using options to manage risk? A. Investors can hedge against a price decline by buying a call option. B. Investors can hedge against a price decline by buying a put option. C. Options suffer a loss if the value of the asset moves in the opposite direction of that being hedged against. D. Options are less expensive than other hedging devices.

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Jairo Alvarado · Answer 1

A. Investors can hedge against a price decline by buying a call option.

Explanation: Investment risk can be defined as the probability or likelihood of occurrence of losses relative to the expected return on any particular investment.

Buying a call option entitles the buyer of the option the right to purchase the underlying futures contract at the strike price any time before the contract expires. Most traders buy call options because they believe a commodity market is going to move higher and they want to profit from that move.

A call option is a contract the gives an investor the right, but not the obligation, to buy a certain amount of shares of a security at a specified price at a later time.