The Main Reason to Buy an Option on a Futures

question 104

Multiple Choice

The main reason to buy an option on a futures contract rather than the futures contract itself is

• A) to reduce transaction cost.
• B) to preserve the possibility for gains.
• C) to limit losses.
• D) to remove the possibility for gains.

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Definitions:

Market Values

The current price at which an asset or service can be bought or sold in a marketplace.

Weighted Average Cost Of Capital

The average rate that a company is expected to pay to all its security holders to finance its assets.

Stock Price

The cost of purchasing a share of a company in the stock market, subject to fluctuations based on supply and demand.

Operating Risk

The risk of loss arising from the day-to-day operations of a business.