Chapter 05 · Section 5.1

Combined Position

Hedging a Long Spot Position with a Long Put

             Long Spot     Long Put         Combined
             Position      Position          Position

Declining    practically   exercise           .....                         
prices:      unlimited                                  
             loss 

• a) Unlimited loss potential.
  No. The possibility to exercise the put, selling the asset at a predetermined price, guarantees the hedger a price floor for his hedged position and thus makes the loss potential limited.
  b) Limited loss potential.

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