If Michael needs to buy a financial asset in the future, which of the following should he do to hedge the risk of a price increase?
A)buy a call option
B)sell a call option
C)buy a put option
D)sell a put option

Question

Quizplus · Accepted Answer

Buying a call option gives Michael the right, but not the obligation, to purchase a financial asset at a predetermined price within a specific time frame. This strategy hedges against the risk of a price increase because if the asset's price rises, Michael can still buy it at the lower, predetermined price.

If Michael Needs to Buy a Financial Asset in the Future