Suppose HOT Shares Are Currently Trading at $12, and That

question 90

Essay

Suppose HOT shares are currently trading at $12, and that you have 10 000 of these shares that you plan to sell in a month.At-the-money HOT call and put options that expire in a month are both trading for $0.30.
A.What is your risk in the physical market and how can this be hedged using options?
B.What minimum price is established through the hedge?
C.Explain what you will do in a month's time if HOT shares are trading at $10.
D.What if the share price rises to $14?

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