Question
Newton has recently built a portfolio of what he believes to be a collection of underpriced small-cap and mid-cap stocks. Newton is only interested in
Newton has recently built a portfolio of what he believes to be a collection of underpriced small-cap and mid-cap stocks. Newton is only interested in exploiting the mispricing of these stocks while urgently avoiding any overall market exposure for the next 6 months. The beta of his portfolio is 0.95 but you would like to target that beta of 1.50 to match your clients high risk tolerance and his portfolio is currently valued at $25.46 million. Very liquid S&P 500 E-mini futures contracts are currently available with a 4-month expiration at price of 2885 and for a 7-month expiration at a price of 2890. Contract size is 50 times the index. Describe exactly how Newton could use futures contracts to meet his needs (i.e., which contract, long or short, how many contracts, what type of order such as market/limit/stop)?
a) which contract 4 or 7 month
b) futures position long or short
c) how many futures contracts
d) what type of order for speed?
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