Question: Explain how call and put options can represent a leveraged way of investing in the stock market and also enable investors to hedge their risk

Explain how call and put options can represent a leveraged way of investing in the stock market and also enable investors to hedge their risk completely. Specifically, under what circumstances will the addition of an option increase the risk of an existing portfolio and under what circumstances will it decrease portfolio risk?

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The important distinction is whether the option is a covered or uncovered position If the option is ... View full answer

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