Which of the following is NOT an objective of call buyers?

Which of the following is NOT an objective of call buyers?

• A. Speculation on stock price rise
• B. Delaying the purchase of stock
• C. Hedging a long stock position against falling prices
• D. Diversifying holdings

Answer: (C)

The objective of call buyers primarily revolves around leveraging upward price movements in stocks. Call options give the holder the right, but not the obligation, to purchase stock at a predetermined price within a specific period. Therefore, the correct answer encompasses objectives that do not align with the typical motivations of those purchasing call options. When it comes to hedging, this practice is generally associated with protecting against losses in an existing position. A call option typically does not serve this purpose for a holder who is long in a stock. If an investor is already holding the stock, they would utilize a put option for hedging against potential declines in the stock's price to mitigate losses. Thus, hedging a long position against falling prices is not a goal of a call buyer. In contrast, the other options highlight valid objectives for call buyers. Speculation on a stock's price rise is a primary motivation, as investors purchase calls anticipating that the stock will increase in value. Delaying the purchase of stock can be strategic, allowing buyers to secure the right to buy at a specific price later while preserving capital in the meantime. Lastly, diversifying holdings can be achieved through call options by allowing investors to gain exposure to different stocks without fully committing capital to outright stock purchases, thus providing

The objective of call buyers primarily revolves around leveraging upward price movements in stocks. Call options give the holder the right, but not the obligation, to purchase stock at a predetermined price within a specific period. Therefore, the correct answer encompasses objectives that do not align with the typical motivations of those purchasing call options.

When it comes to hedging, this practice is generally associated with protecting against losses in an existing position. A call option typically does not serve this purpose for a holder who is long in a stock. If an investor is already holding the stock, they would utilize a put option for hedging against potential declines in the stock's price to mitigate losses. Thus, hedging a long position against falling prices is not a goal of a call buyer.

In contrast, the other options highlight valid objectives for call buyers. Speculation on a stock's price rise is a primary motivation, as investors purchase calls anticipating that the stock will increase in value. Delaying the purchase of stock can be strategic, allowing buyers to secure the right to buy at a specific price later while preserving capital in the meantime. Lastly, diversifying holdings can be achieved through call options by allowing investors to gain exposure to different stocks without fully committing capital to outright stock purchases, thus providing