
closed out while the other remains open, i.e. the shares have been
sold out of the portfolio but the futures being used as a hedge are
open. Those futures are now creating a straight exposure to the
market for the portfolio.
These are very simplistic examples, and the decision on whether
to use futures or options to hedge a portfolio or stock will be made
taking into account many factors. In both cases the position could be
quickly closed out if desired.
In the above examples we have seen how the fund manager wants
to disperse or minimise the impact of risk on their portfolio. But an
investor or indeed a ...