Explain How Options Can Be Used to Manage Risk

question 38

Essay

Explain how options can be used to manage risk.Provide an example using a call option and another example using a put option.

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Definitions:

Direct Labor

Direct labor costs are the wages and related expenses paid to employees who directly work on the production of goods or services.

Product Costs

Direct costs attributable to the production of goods, including direct labor, materials, and manufacturing overhead, capitalized as inventory and then expensed as sold.

Total Period Costs

All expenses incurred by a business that are not directly tied to the production of goods or services within a specific period.

Cost of Work

The total expense incurred in producing goods or services, including materials, labor, and overhead costs.