Options and Their Justifications Quiz
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Questions and Answers

What is one justification for the existence of options?

  • Guaranteeing profits for investors
  • Eliminating the need for margin accounts
  • Reducing the risk of stock investments to zero
  • Expanding the opportunity set available to investors (correct)

    • How do calls expand the opportunity set available to investors?

  • By reducing the risk of stock investments to zero
  • By controlling a claim on the underlying common stock for a much smaller investment (correct)
  • By guaranteeing profits for the investor
  • By eliminating the need for margin accounts

    • What is one benefit of buying a call option?

  • Eliminating the need for margin accounts
  • Reducing the risk of stock investments to zero
  • Guaranteeing profits for the investor
  • Decreasing the risk on a short sale for the life of the call (correct)

    • What can an investor do with puts that duplicates a short sale without a margin account?

    <p>Duplicate a short sale without a margin account</p> Signup and view all the answers

    What is one advantage of being an option buyer?

    <p>Maximum loss is known in advance</p> Signup and view all the answers

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