Briefly Explain Why an Option Is Always Riskier Than the Underlying

question 26

Essay

Briefly explain why an option is always riskier than the underlying stock.

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Definitions:

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, leading to a decrease in per unit cost with an increase in production.

Least Cost

The process of minimizing expenses involved in producing a good or service while maintaining its quality and efficiency.

Minimum Efficient Scale

The smallest amount of production a company can achieve while still taking full advantage of economies of scale with regards to minimizing its costs.