Call Options Are Purchased with the Expectation That the Market

question 107

True/False

Call options are purchased with the expectation that the market price of the underlying security will fall while put options are purchased with the expectation that the market price of the underlying security will rise.

---

Definitions:

Dividend Payout

The portion of a company's earnings paid to shareholders as dividends, often expressed as a percentage of the company's total earnings.

Call Option

A financial contract that gives the holder the right, but not the obligation, to buy a stock, bond, commodity, or other asset at a specified price within a specific time period.

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified time.

Hedge Ratio

The ratio of the size of a position in a hedging instrument to the size of the position being hedged, intended to minimize risk.