A few weeks ago, you realised that you were
exposed to movements in the price of oil. At that time, you hedged this exposure by entering
a long put option written on oil.
The put option had a strike price of $90
per barrel. At the time of the option expiry, the spot price of oil is $105 per
barrel.

Hedging with options gives you a degree of
flexibility. What is the rational decision to make at expiry?

Question

A few weeks ago, you realised that you were
exposed to movements in the price of oil. At that time, you hedged this exposure by entering
a long put option written on oil.  
 The put option had a strike price of $90
per barrel. At the time of the option expiry, the spot price of oil is $105 per
barrel.

Hedging with options gives you a degree of
flexibility. What is the rational decision to make at expiry?

Answer

Impossible to say without knowing the option premium paid for the long put

Answer

Exercise your right to sell oil for $90

Answer

Let the put option lapse

Crowdly

A few weeks ago, you realised that you were exposed to movements in the price o...

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