Chapter 05 · Section 5.1

Hedging a Short Position 1

Hedging a Short Position with a Long Call

Short Spot Long Call Combined

Declining practically expire prices: unlimited or sell profit

For falling prices, the combined position created gives:

b) Limited profit potential.
No. Since the hedger sells or lets the call expire, it does not affect the profit potential of the short position except for the cost of the option.