# HEDGING WITH A PUT OPTION

In the following example, for 3rd question and 4th question why do we have to add (Stock price in three months - Current stock price) to put option profit?

A hedged stock position means that you own the stock and an option to reduce the risk. For owning the stock, you pay $$S_0$$ but receive $$S_T$$ in 3 months. Similarly, your option costs $$1.50$$ but will give you $$\max\{X-S_T,0\}$$.