Finance Theory — 10.5: Futures for Portfolio Management

Описание: How do you control $1 million of S&P 500 exposure with just $70,000? This video walks through the mechanics of using futures contracts for portfolio management — from replicating index exposure with a handful of contracts, to partially hedging a $5 million portfolio by shorting futures, to understanding why 13-to-1 leverage can wipe out your margin in a single bad week.

You'll learn how to size positions by notional value, calculate hedge ratios, and see real drawdown scenarios (Feb 2018, COVID crash, 2022 bear market) that would destroy an under-margined account. The video also covers corporate hedging applications, including how a company like Merck uses currency futures to protect foreign revenue.

Key concepts covered:
• Notional value and the contract multiplier (250 × index level)
• Exposure replication: replacing 500 stock trades with 4 futures contracts
• Partial hedging: shorting futures to reduce portfolio risk by a target percentage
• Hedge ratio calculation and proportional risk reduction
• Futures vs. ETFs: capital efficiency and the 13:1 leverage ratio
• Mark-to-market, margin requirements, and margin call mechanics
• Leverage amplification: how a 5% price drop can mean 100% margin loss
• Historical S&P 500 drawdowns and their impact on leveraged positions
• Hedger vs. speculator: why offsetting positions change the risk profile
• Corporate FX hedging (Merck's $10B foreign revenue example)
• Three golden rules: size by notional, low margin ≠ low risk, monitor daily

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ORIGINAL SOURCE
This video distills concepts from a longer lecture. Full credit to the original creator.
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