Consider a portfolio manager with a $20,500,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 2,550 and has a multiplier of 250. The portfolio beta is 1.25. How many contracts do you need to sell?

Consider a portfolio manager with a $20,500,000 equity portfolio under management. The manager wishes to hedge against a decline in share values using stock index futures. Currently a stock index future is priced at 2,550 and has a multiplier of 250. The portfolio beta is 1.25. How many contracts do you need to sell?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Hi! I am trying to continue this question, please do parts D-F.
You are holding call options on a stock. The stock’s beta is 0.86, and you are concerned that the stock market is about to fall. The stock is currently selling for $22 and you hold 1 million options (i.e., you hold 10,000 contracts for 100 shares each). The option delta is 0.95. How much of the market-index portfolio must you buy or sell to hedge your market exposure? Note: Enter your answer in dollar not in millions. please answer fast i give upvote

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