In each of the following situations, discuss how Hippo Vaughn might use stock index futures to protect a well-diversified stock portfolio:
a. Hippo expects to receive a sizable bonus check next month and would like to invest in stocks, believing that current stock market prices are extremely attractive (but realizing they may not remain so for long).
b. Hippo expects the stock market to decline dramatically very soon and realizes that selling a stock portfolio quickly would result in significant transaction costs.
c. Hippo has a large, unrealized gain and for tax purposes would like to defer the gain until the next tax year, which is several weeks away.