You expect a sizable jump in the stock price but are not sure of the direction in which the stock will go.Which of the following alternatives would be best?

Question

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In (a)you will lose if the jump is negative.In (b)you will lose if the jump is positive.In (c)you will lose either way.In (d)the delta-hedged call position has a U-shaped value function so that a move up or down will result in a gain.

You Expect a Sizable Jump in the Stock Price but Are