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I learned that a company can mitigate risk of fall of value of investment in shares of other company by selling Call options.
Can’t this risk mitigation be achieved by buying Put Options?
Yes they could 🙂
With call options then (as I explain in my free lectures on share options) for every cent the share price falls, then the option price will fall as well, and so provided they have the right number of options (using delta hedging) then the gain from selling call options and buying back later will ‘cancel’ out the loss on the share price.
As I explain in my lectures, although exam questions (and presumably your book) use examples of shareholders using options to hedge the risk, in ‘real life’ it is the option dealers who will be buying shares to hedge their risk and it is them who will use delta hedging on their call options.
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