What Is the Advantage of an Options Hedge Over a Futures

question 118

Multiple Choice

What is the advantage of an options hedge over a futures hedge?

• A)The options hedge has lower credit risk exposure.
• B)The options hedge has lower transaction costs.
• C)The options hedge is marked to market less frequently.
• D)The options hedge offers the most downside risk protection.
• E)The options hedge offers the most upside gain potential.

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Definitions:

Indirect Method

A way of preparing a cash flow statement where net income is adjusted for non-cash transactions, deferrals, and accruals to calculate cash from operating activities.

Gain On Sale

The profit realized from the sale of an asset when the selling price exceeds its book value.

Indirect Method

A method for creating the cash flow statement that involves modifying net income based on balance sheet account variations to compute the operating activities' cash flow.

Accounts Receivable

Money owed to a company by its customers for products or services that have been delivered but not yet paid for.