HKSI Paper 8 Overview of securities investments question: Lau manages a portfolio of large Hong Kong shares

Answer: C. Sell Hang Seng Index futures, so gains on the futures offset losses on the shares

A derivative takes its value from an underlying asset or index. A holder of shares who fears a fall takes an offsetting short position: selling index futures gains as the index falls, offsetting the loss on the portfolio (buying index puts would also work). Buying futures adds to her long exposure, so it loses money in a fall. Selling puts collects a premium but adds to losses if the market falls sharply. Buying calls profits only from a rise and gives no protection against a fall. Source: Standard hedging with index futures; HKSI Prep note: Overview of securities investments (equity, debt and derivatives markets) (as at October 2026).