In general,when deciding whether one needs to buy or sell futures contracts in order to hedge,the rule could be:
A) buy futures if you have the underlying asset and sell futures if you need the underlying asset.
B) sell futures if you have the underlying asset and buy futures if you need the underlying asset.
C) buy futures if you want to speculate, sell futures if you want to hedge.
D) buy futures if you are willing to have unlimited risk, sell futures if you want capped risk.

Question

Quizplus · Accepted Answer

Selling futures contracts is used to hedge against potential price decreases in the underlying asset, while buying futures contracts is used to hedge against potential price increases in the underlying asset. Therefore, if an investor already has the underlying asset and wants to protect against price decreases, they should sell futures contracts. Conversely, if an investor needs the underlying asset and wants to protect against price increases, they should buy futures contracts.

In General,when Deciding Whether One Needs to Buy or Sell