Hedge Example 2

• Investor holds 2,500 shares of the ETF SPY (S & P 500 Index). On 11/7/2019, the Market Price per share of SPY was $308.50.
• Investor feels the S & P lose value over the next few months and wishes to hedge the portfolio against this possibility.
• Two possible strategies:
  • Purchase Put Options
  • Sell to Open S & P 500 Futures

• Using information from Example (2), read the scenario and answer the questions.
  • After one month, the S & P 500 has NOT reversed to the downside as expected. As a result, the S & P 500 now is worth $3,125 and the SPY ETF is $312.50 a share.
• Questions:
  • Whats the Notional Value of the Contract?
  • How much has the portfolio lost from a Market Value perspective on this hedge to date?
  • Any other potential issues to the portfolio from the rise in the S & P 500?