16. What is the theoretical reason options exist?
- Companies would like people to purchase put options for their stocks, because it reduces their risk. Call options serve as the natural extension of put options.
- A single stock price does not represent a single risk; it represents many risks, which matter in different ways to different people.
- Companies would like people to purchase call options for their stocks, because then it reduces their risk. Put options serve as the natural extension of call options.
- Options serve the same role as insurance for investors, because they are able to insure themselves against large losses for long periods of time.