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A hedge fund manager shorted 800 shares of XYZ stock at $65/share and she plans to...

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Finance

A hedge fund manager shorted 800 shares of XYZ stock at$65/share and she plans to close out her short position in ninemonths. She decides to put options to fully hedge her short saleagainst price risk. 9-month XYZ put options have a strike price andpremium of $60 and $.15, respectively. Find her total profit/loss(stock and options combined) if XYZ sells for $59 when the optionsexpire.

  • -4120
  • 4120
  • 4920
  • -4920

Find the manager's total profit/loss (shares and optionscombined) if the stock trades for $72 when the options expire.

Answer & Explanation Solved by verified expert
3.7 Ratings (624 Votes)
Managers profit or loss if XYZ sells for 59 is computed as follows Since Manager shorted 800 shares of XYZ so he will be gaining when the stock falls Hence profit if stock falls to 59 is 65 59 6 per share So profit on 800 shares would be 800 x 6 per share 4800 But for hedging he has short put    See Answer
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