Question

Which of the following is an advantage of hedging with options instead of forward contracts?
A) Options prices tend to be lower than forward prices.
B) If the price moves in the opposite direction to the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option.
C) If the price moves in the direction of the one hedged against, the hedger can decline to exercise the option and limit the loss to what was paid for the option.
D) Options allow investors to purchase a forward contract at a later date.

Answer

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