Understanding Options in Finance

What is the primary characteristic of options that differentiates them from other financial instruments?

• They are mandatory contracts.

• They provide the right but not the obligation to trade.

• They are only used for selling assets.

• They are only used for buying assets.

Which type of option gives the holder the right to buy a stock at a predetermined price?

• Put option

• Sell option

• Strike option

• Call option

What is the primary purpose of using options for hedging?

• To speculate on market trends

• To increase investment returns

• To protect against price fluctuations

• To avoid paying taxes

Which model is commonly used to calculate options prices?

• Fisher Model

• Gordon Growth Model

• CAPM Model

• Black-Scholes Model

What is a key consideration when engaging in options trading?

• Avoiding any form of risk management

• Understanding the specific stock or asset

• Ignoring market news

• Relying solely on luck