What Is the Difference Between the Potential Gains and Losses

question 35

Essay

What is the difference between the potential gains and losses on long positions versus the potential gains and losses on short sales?

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Definitions:

Utility

The measure of satisfaction or value that an individual derives from consuming goods and services.

Risk-neutral

A characteristic of individuals or entities who are indifferent to risk when making investment decisions, focusing solely on the expected returns.

Risk-loving

A characteristic of an individual or entity that prefers or is willing to take actions that have a high level of uncertainty with the potential for significant returns.

Expected Utility

A theory in economics that calculates the anticipated utility of an action, factoring in all possible outcomes weighted by their probabilities.