There is one miscaculation if the example is AMM liquidity farming, when the price of ETH goes to 400, the DAI in LP token is 400 not 500, so the overall asset worth is 1ETH(400) + 400DAI(400)+100DAI(Alice) = 400+400+100-10=890, so to fully offset the risk we need to buy not just 1 but 2 (20/9 to be precise) binary options from alice.