Question

4. Describe the motivations of investors for utilizing options.

5. Design a use of options combination strategies, such as spreads and straddles, to address a hedging exposure you develop. Select the best solution you think would address the exposure.

Answer 1

4. Motivation for investors to utilise options would be-

A. Hedging of the risk of their portfolio

B. Making excess money from taking little risks and having excessive leverage

C. It will only expose the option holder to a right not obligation.

D. The loss on buying of the option is always limited.

5. I would be using a covered call option which will be holding the underlying asset in the portfolio and selling the call option because I will be expecting little upside movement or no outside movement, so I'll be selling out of the money call option and if the price of share is constant, i will be making money on both my underlying assets as well as the value of the premium which I have got on the selling of the call options