As an investment banker, you have just secured an IPO deal for New Deal Inc (NDI), a company using blockchain technology to complete business contracts. You have committed to issue 20 million shares of NDI at an IPO price of $30/share. It is now two weeks before the IPO date and the stock market has been volatile. You are concerned about a potential drop of the overall market, which may overwhelm any expected profit from the deal. In order to hedge the market risk of this deal, you are considering using S&P 500 futures. The contract size is $250 times the S&P 500 index. The current index level is 3100. Using data on similar companies traded in the market, you estimate NDI has a market beta of 0.9.

(a) If you want to hedge the overall risk of the stock market, should you go long or short the S&P 500 futures?

Long

Short

How many S&P 500 futures contracts should you long/short? (report a positive float number with at least two decimals )

Is this a perfect hedge?

Yes

No