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Describe why investors may choose to use futures contracts as part of their investment strategy.(10 marks)...

  1. Describe why investors may choose to use futures contracts as part of their investment strategy.(10 marks)

  1. What is meant by a protective put and why would an investor use it.  (15 marks)

  1. What type of view would you expect an investor to have if buying a straddle, give an example?(10 marks)

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Answer #1

Investors use futures contract as part of their investment strategy due to following reasons :-

1) Leverage: Futures contract provide leverage, thereby enabling a person to gain higher exposure in lieu of smaller margin.

2) Hedging: Futures contract allow a person to completely hedge their market exposure, by short-selling equivalent number of Futures contract. It helps protect an investor in case of a sudden down-turn of market.

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