The purpose of hedging with stock index futures is not to magnify the gains and losses on the hedged stock portfolio.

Question

Quizplus · Accepted Answer

If the stock market does go down, the loss on the portfolio will be partially or fully offset by the profit on the stock index futures contract(s) because they are bought back at a lower price than the initial sales price. While a stock index futures hedge offers the advantage of protecting against losses, it takes away the upside potential.

The Purpose of Hedging with Stock Index Futures Is Not