1. Long Sales - Hedge by BUYING put options On Balance Sheet Off Balance Sheet We buy 500 shares of Arex @ RM3.40 per Simultaneously we buy 500 put options share contracts for the same share at a strike price of RM3.40 paying a premium of RM0.30 per contract The above contract give us the right to sell at maturity date Arex shares @ RM3.40 whatever the market price at the time of maturity. Our investment is shares is RM1700 Our investment in put option is RM150 We wait for 3 months because the option contracts life is only 3 months (10 marks) 2. Long Sales - Hedge by WRITING call options On Balance Sheet Off Balance Sheet We buy 500 shares of Arex @ RM3.40 per Simultaneously we write 500 call options share contracts for the same share at a strike price of RM3.40 paying a premium of RM0.30 per contract The above contract give us the right to buy at maturity date Arex shares @ RM3.40 whatever the market price at the time of maturity. Our investment is shares is RM1700 Our investment in put option is RM150 We wait for 3 months because the option contracts life is only 3 months (10 marks) Additional Information; i. ii. After 90 days, Arex share price falls to RM2.40 After 90 days, Arex share price increases to RM4.00 Required: You are to calculate the net position of (1) and (2) up to the perfectly hedge assumption