Which of the following are true regarding the options markets
A) Hedgers and speculators both attempt to lower risk.
B) Hedgers attempt to lower risk, while speculators attempt to make riskless profits.
C) Hedgers and speculators are both necessary in order for the market to be liquid.
D) all of the above

Question

Quizplus · Accepted Answer

Hedgers attempt to lower risk by using the options market to protect against unexpected price movements, while speculators attempt to profit from those same price movements. Both are necessary in order for the market to be liquid and function properly. Option market liquidity also depends on the availability of hedgers and speculators. Therefore, only option C is true. Option A suggests that both hedgers and speculators attempt to lower risk, which is not true for speculators. Option B suggests that speculators attempt to make riskless profits, which is also not true because speculators take on risk in order to potentially profit from unexpected price movements.

Which of the Following Are True Regarding the Options Markets