Chapter 05 · Section 5.1

Hedging a Long Position

With a long stock position of 100 shares, what would a hedger do to hedge his position?

• a) Buy calls.
  No. The hedger is worried about the practically unlimited loss potential in case prices go down. To hedge his position he needs an options position which either earns money to compensate for losses in his stock position.
  b) Buy puts.

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