Futures- explain concept in the problem given

we need to take opp position in futures market.. in cash markt if v r short(sell) v need to take opp positn that is long(buy) in futures makt, and vise versa... for ex, in cash markt v r long means v bought some shares, then if v wan to hedge then v need to opp postn i.e we need to short (sell) shares in fitures mrkt

beta f a company gives how much it is riskier than stockmarket..i.e companies beta 1.5 means if v invest in this comapany it'll be 150% riskier than v investing in stockmarkt

Originally posted by : John John
	Friends., Please explain the concept used in the following problem? Q) Which position on the index futures gives a speculator, a complete hedge against the following transactions 1) The shares of Right Limited is going to rise. He has a long position on the cash market of Rs 50 Lakhs on the Right Limited. The Beta of the Right Limited is 1.25. The answer is short position(opposite position in relation to Stock for deciding position in Index futures) according to the rule and principles. I would like to know the concept behind it.

For 100% hedging reverse move in futures necessary against cash holding.. its very simple concept at present you have assets (assumed ) in cash market , but dont have liability for it, hence any move will not offset gains/losses in this situation either your gain or loss will 125% depends on move of market..

but on 100% hedging means (shoting futures in same quantum of cash holding )  gain/loss will offset upto 100% & only remaining 25% gains/loss will be  unhedged which will depend on move of market.