UBS Investment Inc. has a stock portfolio worth $200 million, which tracks closely with the S&P 500 index. The portfolio manager fears that a decline is coming and wants to hedge the value of the portfolio over the next year.

1. Assume the current price of the March S&P 500 futures is 900;
2. The value of each contract is $200 multiplied by the price of the contract;
3. If the portfolio and index go down by 21%;

1. Show through calculations how the index trading strategy will help to hedge the portfolio risk,
2. How many contracts are required to hedge the portfolio position?