SIE Exam Question 442: Answer and Explanation

Question: 442

A hedge fund manager that is long large cap US stocks in the fund's portfolio may hedge his risk by

• A. Buying Russell 2000 index puts
• B. Selling Russell 2000 index calls
• C. Selling S&P 500 index calls
• D. Buying S&P 500 index puts

Correct Answer: D

Explanation:

D: The S&P 500 is the broadest measure of the American economy and contains all large cap stock. Buying puts can hedge the long stock fund's risk in its portfolio.