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$15
$10
$0
− $10
− $25
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$25
$10
$0
− $10
− $15
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Loss due
to hedging
Profits
without hedging
Profit with hedg
Gains due to
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Maximum Profits
Break-even point
Maximum Loss
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Maximum profits
Break-even point
Maximum loss
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Maximum Profit
Break-even point
Maximum Loss
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Maximum Profit
Break-even point
Maximum Loss
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Maximum Profit
-$5
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Maximum Loss
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A.
B.
C.
D.
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Option Value is
$20 − $18 = $2
Exercise price
is $18
Current stock price
is $20
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Option Value is
$25 − $20 = $5
Exercise price
is $20
Current stock price
is $25
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