An option buyer
A)has a greater insurance benefit than the purchaser of a futures contract.
B)bears the risk of unfavorable price movements.
C)is purchasing a naked option if he or she does not also own the underlying asset.
D)generally will incur a lower cost than will the purchaser of a futures contract.

Question

An option buyer
A)has a greater insurance benefit than the purchaser of a futures contract.
B)bears the risk of unfavorable price movements.
C)is purchasing a naked option if he or she does not also own the underlying asset.
D)generally will incur a lower cost than will the purchaser of a futures contract.

Quizplus · Accepted Answer

An option buyer has a greater insurance benefit than the purchaser of a futures contract because they have the right, but not the obligation, to exercise the option, limiting their risk to the premium paid.

An Option Buyer