China Economic Problems
There is a good chance that one is likely to lose money when buying a call, even if the stock market will slowly recover. Purchasing a call option means that I will purchase the underlying stock at a strike price within a certain time period. This will give me the right to purchase stock at that certain price until the predetermined date expires. However, the value of my call option will be determined by how fast the stock rise. If the stock is equal to my strike price, then I will lose my money on the call because the contract will be invaluable. Also, if the stock price is lower than the strike price, I will also lose my money, and the contract will be worthless. Therefore, for my call option to make profits, the stock price has to be more than the strike price.
There is a risk at speculating stock prices at such a time. Even if the country manages to get a grip on this disease and the economy starts improving, people will be shy to invest due to the uncertainty in the economy. Therefore, the stock prices may take a little longer than expected to increase above the strike price. Also, the economy will not be stable; there will be volatility in the stock market as prices try to stabilize. This will also discourage many to refrain from investing. There will probably be overwhelming options, as everyone tries to sell stock to people. As humans, we are inclined to avoid making a decision in fear of making the wrong decisions. Investing could also not be an option for many at that time, as everyone is trying to stabilize their businesses. Therefore, as much as the economy will rise slowly, the problem will be that people have so many reasons not to invest, and the stock price will rise slower than speculated.
References
Farrington, R. (2019). Reasons not to invest. Retrieved from https://thecollegeinvestor.com/1502/reasons-to-not-invest/
Royal, J. (2019). Call options: learn the basics of buying and selling. Retrieved from https://www.bankrate.com/investing/what-are-call-options-learn-basics-buying-selling/