A Major Disadvantage of Using Call Options to Hedge a Short

question 68

Multiple Choice

A major disadvantage of using call options to hedge a short position is that:

• A)hedging increases the risk of loss on the short sale.
• B)the option premium and commission reduce profit potential.
• C)the price of the stock may go up.
• D)None of the above

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Definitions:

Offshoring Backlash

Negative public and political reaction against companies moving production or services to another country to reduce costs, often leading to job losses in the home country.

Technological Factor

An aspect of the external environment that represents how advances in technology can impact business operations and market competitiveness.

PEST Analysis

A framework used to analyze and monitor the macro-environmental factors that may have a profound impact on an organization's performance. This includes Political, Economic, Social, and Technological factors.

Advancement Of Infrastructure

The improvement or upgrading of the foundational physical and organizational structures needed for the operation of a society or enterprise.