Suppose the June S&P 500 index futures contract settled at 1091.80. You have a $2.730 million stock portfolio with a beta of 1.20. How many index futures contracts must you enter into in order to have a 100% hedge?

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Quizplus · Accepted Answer

To hedge the portfolio, calculate the number of contracts: (Portfolio Value * Beta) / (Index Value * Multiplier). Here, the multiplier is typically 250 for S&P 500 futures. So, ($2,730,000 * 1.20) / (1091.80 * 250) = 12 contracts. Since the portfolio has a beta greater than 1, you would short the contracts to hedge.

Suppose the June S&P 500 Index Futures Contract Settled at 1091.80