Using options to place a bet on the direction in which you believe the market is likely to move is called
A)speculation.
B)a naked position.
C)hedging.
D)a covered position.

Question

Using options to place a bet on the direction in which you believe the market is likely to move is called
A)speculation.
B)a naked position.
C)hedging.
D)a covered position.

Quizplus · Accepted Answer

Speculation is the act of taking a financial position in the hope of profiting from a predicted movement in the price of an asset or market. Options can be a tool for speculation, allowing traders to take a position on the direction of the market without requiring ownership of the underlying asset. A naked position refers to a position in which the trader holds an option contract without owning the underlying asset or holding another offsetting option contract. Hedging involves taking positions in the market to offset potential losses in another position. A covered position refers to holding an option contract while simultaneously owning the underlying asset to limit potential losses.

Using Options to Place a Bet on the Direction in Which