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    Question

    1.     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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