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Suppose you have invested $100,000 in a stock portfolio that can approximately represent the S&P 500...

Suppose you have invested $100,000 in a stock portfolio that can approximately represent the S&P 500 index. Now you think that you should invest 1⁄2 of your money in gold synthetically and the remaining would still be invested in the stock portfolio. How can you achieve this without selling a single stock from your portfolio? Explain your strategy in detail.

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Expert Solution

If you wants to transfer the beta exposure from equity market to gold market without sell any stock, then Futures comes into play and you have to sell the $50'000 S&P 500 Index Futures and buy $50'000 Gold Futures so that synthetically you invest only $50'000 in portfolio and 1/2 of the portfolio ie. $50'000 in gold synthetically.

jeff jeffy answered 1 year ago
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