Example": Feaging with a Put option (I) - Suppose that an investor owns 100 shares...
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Example": Feaging with a Put option (I) - Suppose that an investor owns 100 shares of ABC stock currently priced at $80. The investor is worried about the possibility of a drop in share price over the next three months and is contemplating purchasing put options with a strike price of $80 to hedge this risk. Compute the following: Example 1: Hedging with a Put Option (II) (1) The profit on the unhedged position if the stock price in three months is $100. (2) The profit on the unhedged position if the stock price in three months is $120. (3) The profit for a hedged stock position if the stock price in three months is $100, the strike price on the put is $80, and the put premium is $8.00. (4) The profit for a hedged stock position if the stock price in three months is $120, the strike price on the put is $80, and the put premium is $8.00
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