You own a stock portfolio which is valued at $10 million and has a beta of 1.5.

Question

You own a stock portfolio which is valued at $10 million and has a beta of 1.5. You would like to create a full hedge on this portfolio using S&P 500 futures contracts. The contract size is $250 times the index level. What futures position do you need to establish if the current S&P 500 index is 1500?

D) short 30 contracts

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When the seller of a futures contract is granted a choice among various assets to deliver, the seller is said to have which one of the following options?

Explanation / Answer

1.
Option C
Number of contracts to be shorted=beta*portfolio value/(contract size*index level)=1.5*10000000/(250*1500)=40
2.
Option C
cheapest-to-deliver option

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