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5. Hedging with stock options Suppose that Deblin Pension Fund purchased Omegaco stock at the market price of $110 per share, and to hedge against
5. Hedging with stock options Suppose that Deblin Pension Fund purchased Omegaco stock at the market price of $110 per share, and to hedge against what they think will be a temporary decline in Omegaco's stock price, Deblin sells call options on Omegaco stock with an exercise price of $108 per share for a premium of $3 per share. Assume that Deblin Pension Fund sells its shares at the expiration date no matter the market price at the time. Use the previous information to determine the prices Deblin Pension Fund will sell Omegaco's stock for, as well as the profit they earn, at each given expiration date market price. (Hint: Assume the call option will be exercised only if the expiration date market price is greater than or equal to the exercise price plus the call premium.)
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