A Major Disadvantage of Using Call Options to Hedge a Short

question 35

Multiple Choice

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

• 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:

Double-Masked Study

A type of clinical trial where neither the participants nor the experimenters know who is receiving a particular treatment, reducing bias.

Selection Bias

A distortion in the outcome of a study due to non-random selection of participants, leading to an unrepresentative sample.

Double-Masked

A study design in which neither the participants nor the researchers know which participants belong to the control group and which to the experimental group, to prevent bias.

Correlation

A statistical measure that describes the extent to which two variables change together, and the direction (positive or negative) of that relationship.