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(b) You have been investing in the stock market and have been eyeing the potential use of options contract to hedge risk. You estimated that
(b) You have been investing in the stock market and have been eyeing the potential use of options contract to hedge risk. You estimated that the market is about to undergo a downturn in the near period. The following information on Speed Inc.'s put option and call option are available for your analysis. Both of these contracts have three months to maturity. Speed Berhad Current share price = $14.50 per share Call Option Put Option Exercise Premium Strike price Price RM13 RM0.20 Put option RM13 Premium Call option RM1.50 Supposed you have purchased 100 shares of Speed Inc. at RM14.50 per share. Using the information provided, decide on what course of actions should you take to minimize your loss. Analyse the projected profit and loss from your selected action under different expected future share price assumptions. Use appropriate examples to support your analyses. (15 marks)
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