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You own 100 shares of stock ABC，priced at $75. You want to protect against a price...

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Finance

You own 100 shares of stock ABC，priced at $75. You want toprotect against a price decline. You plan to hedge with an OPTION,having a Strike Price = 70 and a (per share) option price of $4.00( real position, the option, and overall outcomes）
a) Specify the option position, and Draw the 3 or 4 relevant“final graphs”
b) On the graphs, specify the $ outcomes if the ABC stockprice is $52, 72, 92 when the option expires.

Answer & Explanation Solved by verified expert
4.4 Ratings (961 Votes)
100 Stocks of ABCPrice 75a To hedge against a price decline we should purchase a Putoption on the stock of ABCPurchasing a put option at a strike price of 70    See Answer
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