You manage a stock portfolio worth $3,000,000 that has a beta of 1.25. In order to hedge the portfolio, you decide to trade S&P 500 futures contracts. Each contract is worth $250 per index point. How many contracts do you need to buy or sell if the S&P 500 index is currently at 1,500?

Question

Quizplus · Accepted Answer

To hedge the portfolio, you need to sell futures contracts. The number of contracts is calculated as: (Portfolio Value * Portfolio Beta) / (Futures Contract Value). Here, (3,000,000 * 1.25) / (250 * 1,500) = 10 contracts.

You Manage a Stock Portfolio Worth $3,000,000 That Has a Beta