Question
Hedging with a put option Suppose that an investor owns one share of ABC stock currently priced at $30. The investor is worried about the
Hedging with a put option
Suppose that an investor owns one share of ABC stock currently priced at $30. The investor is worried about the possibility of a drop in share price over the next three months and is contemplating purchasing put options to hedge this risk. The put option is having a strike of $30 and premium of $1.50. Compute the profit of a
a. un-hedged position if the stock price in three months is $25
b. *un-hedged position if the stock price in three months is $35
c. hedged position if the stock price in three months is $25
d. *hedged position if the stock price in three months is $35
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