Troy is worried about Mega co. In July 2007 he decides to buy a put option to protect his position in the stock. The price of the stock has dropped to $14 per share. The put option has an expiration of January 2008, an exercise price of $13, and a premium of $2.

1. How many option contracts should he purchase to fully hedge his long position in Mega co?

2. The price of Mega co. has dropped to $10. If the option is exercised, what is Troys totalgain/loss?