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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Understanding Index

A portfolio worth Rs 50 lakh has a beta of 1.2. A trader wants to fully hedge it using index futures when the index is at 20,000 and the lot size is 50. How many index futures contracts should be sold, to the nearest whole number?

Six futures contracts should be sold. The contract value is 20,000 times 50, or Rs 10 lakh. The beta-adjusted exposure is 1.2 times Rs 50 lakh, or Rs 60 lakh, and dividing by Rs 10 lakh gives 6 contracts.

  1. A5
  2. B6Correct
  3. C4
  4. D3

Explanation

One contract value = 20,000 x 50 = Rs 10,00,000. Contracts = beta x portfolio value / contract value = 1.2 x 50,00,000 / 10,00,000 = 6. Ignoring beta gives 5. Using 4 or 3 results from wrong contract value or ratio.

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