Assume you just purchased 100 shares of Apple stocks at $580. You are worrying that the competition from other tablet PC producers will have a negative impact on Apple stock prices in 1 month. Generally speaking, you are still quite bullish on Apple stock.

(i) In order to hedge against this downside risk, you establish a protective put position by buying a put option contract with around 1-month maturity on Apple stock (note: 1 contract consists of 100 options). Each put option has a strike price of $580 and a premium of $21.00. If AAPLs stock price is $500 after 1 month, please compute the profit/gain from the overall protective put position (that consists of a stock and a put).

(ii) If you feel the premium of the put option with strike price at $580 is quite expensive, what can we do to reduce the cost of protective put position? Please explain the benefit/cost of this alternative way to limit the downside risk? (It is an openquestion.)