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$15
$10

$0

$10

$25

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$10
$0

$10
$15

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Profits
without hedging
Loss due
to 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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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

-$5 Maximum Loss

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Break-even point

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A.

B.

C.

D.

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Exercise price
is $18
Option Value is
$20 $18 = $2
Current stock price
is $20

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Exercise price
is $20
Option Value is
$25 $20 = $5
Current stock price
is $25

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