How can an option be used as a defensive tool by hedgers?
A) As a tool to protect against future losses.
B) As a tool to limit the index of stocks in a portfolio.
C) As a method to guard against speculation by the other party to the investment.
D) As a tool to profit from future price changes.
E) As a method to make decisions based on incomplete predictions.
Answer: A
Explanation: Like all derivatives, options can be used offensively by speculators hoping to profit from future price changes or defensively by hedgers to protect their existing positions against future losses.
You might also like to view...
New products can form the foundation for a complete turnaround of a company's performance
Indicate whether the statement is true or false
Research indicates that at least 5–10 percent of a company's customer base is composed of consumers who premeditate rip-offs and firms defend themselves by treating the 90–95 percent of honest customers like crooks
Indicate whether the statement is true or false