# Hedging Options [closed]

Scenario: stock trading at 100 today, 80% chance it will trade at 110 tomorrow, 20% chance it will trade at 90 tomorrow

A new 100 strike call option on this stock is worth 8 today (assuming no discounting).

Assume you buy this call option. Now, you can hedge this option by selling 50 shares today, giving a payoff of -3 tomorrow. This is clearly a poor trade.

Logically, shouldn’t the payoff of the hedged position be zero in this scenario? What am I missing here?

## closed as off-topic by Quantuple, LocalVolatility, Bob Jansen♦Sep 22 '17 at 10:38

This question appears to be off-topic. The users who voted to close gave this specific reason:

• "Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance." – Quantuple, LocalVolatility, Bob Jansen
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• To add, the risk neutral probabilities are calculated as $q$ and $1-q$ where $q = (S_\mathrm{now} - S_\mathrm{down})/(S_\mathrm{up} - S_\mathrm{down})$. – Bob Jansen Sep 22 '17 at 6:13