What option contract should you buy if you want to be able to buy the underlying

Question

What option contract should you buy if you want to be able to buy the underlying stock prior to the option expiration date?

A. European put option

B. European call option

C. American put option

D. American call option

E. Either (B) or (D) would work.

Unlike hedging with futures, hedging with options _____.

A. locks in a particular price or rate of return for a hedger

B. exposes a hedger to a risk of large losses

C. allows a hedger to benefit from the upside price potential of the spot position

D. involves no payment of premium

E. Both (B) and (C)

Explanation / Answer

1. Call option because he needs to buy the stock and not sell the stock..American call option allows exercise before expiry European does not..Option D

2. exposes a hedger to a risk of large losses

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