Investors can use futures to protect against symmetric risk and options to protect against asymmetric risk.

Question

Quizplus · Accepted Answer

Futures contracts can be used to hedge against symmetric risk, where the potential for gains or losses is similar in magnitude. Options, on the other hand, are more suited for hedging against asymmetric risk, where the potential for loss significantly differs from the potential for gain, as they provide the right but not the obligation to buy or sell an asset, allowing investors to limit losses while retaining the possibility for unlimited gains.

Investors Can Use Futures to Protect Against Symmetric Risk and Options