Using an option to reduce the risk of a portfolio is called ________, while using options to bet on the direction of the market or an asset is called ________.
A) hedging, speculation
B) hedging, verification
C) verification, hedging
D) speculation, hedging

Question

Quizplus · Accepted Answer

Hedging involves using options to reduce the risk of a portfolio, while speculation involves using options to bet on the direction of the market or an asset. Therefore, option A is the correct choice. Option B, C, and D are incorrect as they either mix up the terms or reverse their meanings.

Using an Option to Reduce the Risk of a Portfolio