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:

Maturity Value

The amount payable to an investor at the end of a fixed term investment.

Financial Planning

The process of creating strategies for managing finances to achieve personal financial goals.

Inflation Rate

The velocity at which there is a general increase in the cost of goods and services, thereby reducing the effective purchasing capability.

Compound Interest CSB

The calculation of interest on a Canada Savings Bond (CSB) where interest earned also earns interest over time.