Creating cash using equity

CFA Level III Derivatives
#1

Could someone please explain the whole process of creating cash with equity using futures. It’s supposed to be intuitive but mans not getting it.

Thanks.

#2

Long equity means that your beta is positive. You will short equity futures contract to reduce the overall portfolio beta to zero (i.e. synthetic risk-free position).

This synthetic risk-free position can then be used as a collateral to take a loan out with a high Loan to Value ratio.

#3

You lock in the price at which you sell your equity position at some point in the future at a fixed price. (no downside, no upside potential)

Since you don’t have any more price risk in your security (as you sell someone the right to purchase @ fixed price no matter what) you can then borrow against your position by up to 99%. Free up $ & avoid triggering a taxable event.