Question - You are given one-year stock options with an exercise price of $30. The current stock price is $30, so the options are at-the-money. Without hedging, the stock price at year-end will either be $28 or $38 with equal probability. Hedging shrinks the range of prices between $30 and $36. Find the difference in expected cash flow under the two scenarios.
A) $1
B) $4
C) $10
D) $6