Chapter 05 · Section 5.1

Hedging a Short Position 3

                  Short Spot    Long Call        Combined
                  Position      Position         Position

Declining         practically   expire           practically 
prices:           unlimited     or sell          unlimited
                  profit                         profit

Increasing        unlimited      exercise        limited 
prices:           loss                           loss                            

The hedger has: -retained the possibility of profitting from declining prices.
-obtained a protection against increasing prices.