A call option is equivalent to a leveraged investment in the underlying asset.

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the underlying asset at a certain price (strike price) before the expiration date. This allows the holder to benefit from the increase in the price of the underlying asset, while only paying a fraction of its actual value (the premium). Therefore, a call option can be seen as a leveraged investment as it allows the holder to control a larger amount of the underlying asset with a smaller investment. However, this also means that the potential losses are limited to the premium paid for the option.

A Call Option Is Equivalent to a Leveraged Investment in the Underlying