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

Quizplus · Accepted Answer

Speculation involves making a bet on the direction in which the market is likely to move, and using options to do this is a common strategy. Hedging, on the other hand, involves using options to offset the risk of a separate investment, rather than making a direct bet on the market's direction. A covered position involves owning the underlying asset that an option is based on, while a naked position involves selling or buying options without owning the underlying asset, which is generally considered to be a riskier strategy.

Using Options to Place a Bet on the Direction in Which