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A little more than 10 months ago, Luke bought 300 shares of stock at $40 per share. Since then, the price of the stock has
A little more than 10 months ago, Luke bought 300 shares of stock at $40 per share. Since then, the price of the stock has risen to $75 per share. The market is starting to weaken and he is thinking of using puts to hedge his position. He can buy 3 -month puts, with $75 strike prices, at a cost of $550 per contract. a. How much would he make if he did not hedge but instead sold his stock immediately at a price of $75 per share? b. Assuming Luke uses 3 puts to hedge his position, indicate the amount of profit he will generate if the stock moves to $100 by the expiration date of the puts. And what would his profit be if the stock drops to $50 per share
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