1.You are managing a $8 million mid-cap equity portfolio for one of your clients. The current beta of your portfolio is 1.2 (relative to the S&P500). You are concerned that the market may drop if the current relaxing of social distancing guidelines results in a steep increase in Covid-19 cases. However, you expect that the market will experience a short upward bump after the election in November, and the market will go back to normal in December. So, you would like to eliminate your market exposure until November. You would like your beta to be 2.0 from November to December, after which you want your beta to go back to its current level (1.2). You do not want to trade any of the stocks in your portfolio so you will only use futures to change your beta. (Hints: a) Consider the 2.0 beta first, b) do NOT over hedge, c) if you have stocks plus futures, the portfolio value for hedging purposes is the value of the stocks plus or minus the notional value of the futures)

- The S&P 500 is currently at 2,250.00,

- the current price of a November SPX contract is 2,003.78,

- the current price of a December SPX contract is 2,327.27, and

- the current price of a January SPX contract is 2,392.00.

If each SPX contract is for $250 times the value of the S&P 500, what futures position(s) will you put on today to have your betas follow the pattern outlined above without any further trading for the year. Specify the contract, quantity and whether long or short.

Contract

Quantity

Long or Short

November SPX

December SPX

January SPX