You manage a $10 million portfolio, all invested in equities; the beta for your portfolio is 0.70. You believe the market is on the verge of a big but short-lived downturn; you would move your portfolio temporarily to T-bills, but you do not want to incur the transaction costs of liquidating and re-establishing your equity position. You decide to temporarily hedge your equity holdings with S&P 500 index futures contracts.
a) Should you be long or short the contracts?
b) How many contracts should you enter? (Assume the S&P index is at 1500 and the contract multiplier is $250.)
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