If investing in calls or puts is higher risk than investing in the actual stocks, why...

If investing in calls or puts is higher risk than investing in the actual stocks, why would anyone ever want to buy those things?

Expert Solution

Answer: Yes, This is true. Investing in calls and puts has much higher risk than investing in stocks. If You buy stocks, you get the holding/ownership of that stock and if the price drops also, you can keep the stock and sell when it goes higher. You also get dividend and capital appreciation while investing into stocks.

On the other hand, Call and Puts are the types of Options contract and are considered risky.

Call- It is a right but not the obligation to buy an underlying. Call is bought when trader is bullish towards a particular security or index.

Put- It is a right but not the obligation to sell an underlying. Put is bought when trader is bearish towards a particular security or index.

Benefits in trading in Call and Put- Call and Put give the trader the hedging benefit. Traders can mitigate their risks while trading in options. Options reap higher returns even in the volatile and down market. Trading in Call and Put require less capital and risk is limited to the premium paid (in case of buying).

jeff jeffy answered 5 months ago

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