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solution

Laila has a portfolio of RM1 million and she found during this
pandemic Covid, the Kuala Lumpur Composite Index (KLCI) has dropped
by 10% since last March. She refers to you as to get your advised
how to protect her portfolio from the instability market and local
politic. You advised her to buy a call option at exercise price of
RM55/share at a premium of RM2/share for 10,000 shares in June 2020
for 6 months. You expected bullish on the underlying market price
by the end of the year. In addition, you ask her to long hedge 1100
contracts in futures market in September 2020 and to offset the
position in February 2021. Currently the KLCI is 1100 while the
KLCI futures is 1140 and you expected the both KLCI and KLCI
futures will increase by 12%. In last October 2020, the Covid 19
cases has increased to 4 figures and it makes the market back to
has slow down again as in last few months ago. The market price has
dropped to RM50/share and you advised her to wait until end of this
year. As end of December 2020 the price has increase as your
expectation and strike to RM62/share. Required:a. Why you advise
Laila to buy a call option and long hedge in futures market? (5
marks) (CLO3:PLO6:C5) b. Compute the profit/loss earn by Laila in
futures market. (5 marks) (CLO3:PLO6:C3) c. Compute the profit/loss
earn by Laila in options market. (3 marks) (CLO3:PLO6:C3) d. If
Laila exercises her options in December 2020, what is her position?
Elaborate and proof by calculation.

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