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
The combined position created gives:
a) Unlimited loss potential.
b) Limited loss potential.
The put gives the hedger the right to sell the hedged asset. He can use this right, if the price of the asset goes down.