Question: Given the following information, answer the question step by step. No mark will be given if you skip the steps Paul is interested in investment.

Given the following information, answer the question step by step. No mark will be given if you skip the steps

Paul is interested in investment.

Paul is holding a HSC stock now priced at $50 per share. The following securities are also traded in the market now:

HSC Futures: futures price $55 per share, expiry 1-month later.

HSC Call option: exercise price $50 per share, expiry 1-month later, option premium $3.

HSC Put option: exercise price $50 per share, expiry 1-month later, option premium $5.

a) Paul wants to hedge against the downside risk of holding HSBC stock. Identify the option strategy she should use and describe with a diagram the profits of Paul's hedged portfolio on the expiry date of the option.

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