You hold 20,000 shares in ABC plc which are currently priced at 500p. ABC has developed a revolutionary flying machine. If trials prove successful the share price will rise significantly. If the government bans the use of the machine, following a trial failure, the share price will collapse. Required:

(a) Explain and illustrate how you could use the traded options market to hedge your position.

Further information

Current time: 30 January.

Traded option quotes on ABC plc on 30 January:

(b) What is meant by intrinsic value, time value, in-the-money, at-the-money and out-of-the-money?

Use the above table to illustrate.