Shirley buys 1,000 ANZ shares at a price of $8.47 and decides to construct a hedge using an equal number of call options with an exercise price of $7.50, and a cost of $1.00 per option.  Ignoring the time difference between the purchase or sale of the option and its expiry:

.i) construct a clearly labelled diagram showing the expiry profit as a function of share-price, from the hedged position

calculate the profit for the expiry share-prices of $8.00 and $8.75.

Answer rating: 100% (QA)

To construct the hedge Shirley buys 1000 call options at a cost of 100 per option with an exercise price of 750 Each option covers 100 shares so the t... View the full answer