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Contemplating purchasing put options to hedge risk

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Reference no: EM133239390

Suppose that an investor owns one share of ABC stock currently prices 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. Compute the following:

The profits on the unhedged position if the stock price in three months is $25.

The profits on the unhedged position if the stock price in three months is $35.

The profits for a hedged stock position if the stock price in three months is $25, the strike price on the put is $30, and the premium is $1.5.

The profits for a hedged stock position if the stock price in three months is $35, the strike price on the put is $30, and the premium is $1.5.

Reference no: EM133239390

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