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      Question

       A trader wants to hedge their portfolio, which has a

      value of 20,00,000 by using S&P 500 futures contracts. The current price of one S&P 500 futures contract is $2,500, and the trader wants to achieve an 80% hedge. How many S&P 500 futures contracts should the trader buy or sell to achieve this hedge?
      A 1000 Contracts Correct Answer Incorrect Answer
      B 640 Contracts Correct Answer Incorrect Answer
      C 800 Contracts Correct Answer Incorrect Answer
      D 500 contracts Correct Answer Incorrect Answer
      E 1200 Contracts Correct Answer Incorrect Answer

      Solution

      We need 80% hedging of 20,00,000 value i.e., 16,00,000 Number of contracts = (Value to Hedge) / (Contract Size) Number of contracts = ($16,00,000) / ($2,500) = 640 contracts

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