Can someone explain how the seller of a put option hedges his risk. Apart from buying another put
Short the underlying, or sell a call.
Questions like this are easy to answer if you draw a picture.
Your portfolio payoff: /¯.
You want to counteract this part: /.
The way to do that is with something that looks like this: \.
Payoff on short underlying: \.
Payoff on short call: ¯\.
Do you have a link to the payoff thing. I really want to understand options in-depth. I don’t fully understand mini payoff sketch
I’ve been able to figure a way out… I used Put-Call parity. So if I sell a put option to hedge my position I’ll simultaneously short the underlying and long a call. I don’t know if that’s correct
Yes: short the underlying and long a call is a synthetic long put.
Thank you
My pleasure.