Skip to content

NISM Certifications · NISM-Series-VIII: Equity Derivatives · Strategies using Equity Futures and Equity Options

An investor holds a portfolio of stocks closely tracking the Nifty and fears a short-term market fall but does not want to sell the stocks. Which futures position best hedges this exposure?

Selling Nifty futures is the best hedge, because the investor's portfolio loses value when the market falls and the short futures position gains in that situation, offsetting the loss without requiring the stocks to be sold.

  1. ABuy Nifty futures
  2. BSell Nifty futuresCorrect
  3. CBuy stock futures of a single company
  4. DDo nothing and hold cash margin

Explanation

A long equity portfolio loses when the market falls. Selling index futures produces gains when the index falls, offsetting the portfolio loss. Buying futures would increase the exposure to the same risk.

Did you get it right without looking?

One question tells you little. A timed set on Strategies using Equity Futures and Equity Options shows your real accuracy, how long you take and where you lose marks.

Practise Strategies using Equity Futures and Equity OptionsFree diagnostic mock

More Strategies using Equity Futures and Equity Options questions