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Questions and Answers
What is one justification for the existence of options?
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?
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?
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?
What can an investor do with puts that duplicates a short sale without a margin account?
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What is one advantage of being an option buyer?
What is one advantage of being an option buyer?
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