Instead of buying and selling stocks, investors may use these kinds of contracts while hedging. For 10 points each:
[10m] Name these kinds of contracts, which give the owner the right to [emphasize] buy some underlying asset at a specified strike price.
ANSWER: call options [or calls; accept American call options; accept European call options; prompt on options]
[10e] Calls and puts can be used to lower this value for a trading strategy. If an investor prefers to preserve capital and not use aggressive strategies, they can be called “averse” to this concept.
ANSWER: risk [accept volatility; accept variance]
[10h] Lowering the risk of a trading strategy increases this quantity, which quantifies the difference between a strategy’s returns and the risk-free return with respect to the risk of the strategy. This quantity’s namesake helped develop the CAPM.
ANSWER: Sharpe ratio
<CT, Social Science>