You have $25,000$ USD equity portfolio that has a beta of $1.$

You must choose either an SP$500$ Micro futures contract or SP$500$ Index Option for your hedge instrument.

The current SP$500$ value is $4500$ and an SP$500$ Micro futures contract multiplier is $$5.$ Let's assume the following:

SP$500$ Micro contract value is also $4500$ with margin required $$2,000$ and a HR $=1$ with your portfolio

SP$500$ Index option with strike of $4200$ is priced at $$50$ premium

First find how many contracts are required of each hedge instrument to cover full portfolio value at risk.

Then, given the constraint that you can only spend $$4,000$ to hedge your risk, which instrument would you choose to hedge your full portfolio risk under this constraint?

Group of answer choices

SP$500$ Index Option @ $4200$ with premium $$50$

SP$500$ Micro futures @ $4500$

can not use either of these instruments to hedge under this constraint