Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What type of strategies might a bullish investor employ?

1. Buying put options and shorting stocks

2. Investing in mutual funds with fixed returns

3. Purchasing stocks and call options

4. Only investing in commodities

The correct answer is: Purchasing stocks and call options

A bullish investor believes that the market or a particular asset will rise in value. To capitalize on this expected increase, such investors often employ strategies that involve purchasing assets that benefit from upward price movements. Purchasing stocks is a direct way to invest in a company's growth potential. When the stock price increases, the investor benefits from capital gains. Additionally, buying call options complements this strategy because call options grant the right, but not the obligation, to buy the underlying stock at a predetermined price (the strike price) before the option expires. If the stock price rises above the strike price, the investor can purchase the stock at a lower price, thereby enhancing potential profitability. This approach aligns perfectly with a bullish sentiment as both buying stocks and call options are aimed at benefiting from rising market conditions. In contrast, other strategies listed, such as buying put options, involve betting against a stock’s performance, which corresponds to a bearish outlook. Investing solely in mutual funds with fixed returns or focusing exclusively on commodities does not necessarily capture the dynamic opportunities available in the stock market that a bullish investor seeks. Each of these alternatives has a different risk and return profile that does not align with the bullish perspective aiming for growth.