Strategies For Equity Futures and Equity Options
Index futures are used to mitigate the risk from portfolio stocks. Let’s assume you have a portfolio of 20 stocks which is a well-diversified portfolio, in which our maximum risk can be zero. Our investments are still subject to market risks. To reduce market risks, we can adopt the following strategies. To reduce the loss in portfolio due to market risk, we can hedge by selling index futures, so that even if the market crashes and your portfolio suffers a loss, on the other hand, you make a profit in the short position of index futures.