Hedge a portfolio against a drop in the market

Problem: Assume you hold a well balanced portfolio of common stocks. Under what conditions might you want to use a stock index (of ETF) option to hedge the portfolio?

1) Briefly explain how such options could be used to hedge a portfolio against a drop in the market.

2) Discuss what happens if the market does, in fact, go down

3) What happens if the market goes up instead?

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Finance Basics: Hedge a portfolio against a drop in the market
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