M6A — CM-SIP: Specified Investment Products (Derivatives and CIS)
Futures Strategies: Hedging, Spreads and Arbitrage
Chapter 3 turns futures mechanics into strategies: short and long hedges, beta-weighted equity index hedges, interest rate and currency hedges, strip and stack hedges, calendar and inter-commodity spreads, index arbitrage and synthetic asset allocation. This is the most calculation-heavy part of the paper. Expect contract-number, tick-value, effective-price and fair-value questions, plus the trap that a futures hedge gives away upside.
7 sections·~2 min read
✓Checked against the IBF CMFAS CM-SIP syllabus chapter 3 (IBF examination details page); IBF CM-SIP Summary of Updates Jan 2026 v1.1 (section 2.3.3.2 index futures pricing, section 2.6 basis, Appendix E Q8-9 loan hedges with 3-month interest rate futures); checked 13 Sep 2026. Unofficial prep, not endorsed by MAS or IBF.
★
Must-know for the exam
✓Short hedge: sell futures to protect an asset held or to be produced. Long hedge: buy futures to lock in the cost of a future purchase.
✓Equity index hedge: contracts = (portfolio value / (futures price x multiplier)) x beta.
✓Change beta: contracts = (target beta - current beta) x portfolio value / contract value. Negative = sell, positive = buy.
✓Minimum-variance hedge ratio h = correlation x (sd spot / sd futures).
✓Duration hedge contracts = (portfolio value x portfolio duration) / (futures value x futures duration).
Why this matters in the exam
•Around a quarter of CM-SIP questions involve arithmetic, and futures strategies supply many of them. The numbers are simple; marks are lost on direction (buy or sell), forgetting beta or the three-month factor, and mixing up basis conventions.
Short and long hedges
•Match the futures position to the opposite of your exposure. Own it or will produce it: sell futures. Will buy it: buy futures.
•Worked example: a farmer sells futures at 500. At harvest spot is 450 and the futures is bought back at 460. Effective price = 450 + (500 - 460) = 490.
•Trap: a futures hedge locks in a price in both directions. If prices move in your favour, the hedge loses. A futures hedge can also drain cash through daily margin calls while the offsetting gain on inventory is unrealised.
CMFASPrep