I was asked this in an interview and I messed it up lol. This might actually be really basic. Let's say I signed a forward contract to buy NASDAQ at 4000 one year from now. How can I hedge this cash flow?
I was thinking of buying a put at 4000 strike, so that if S_t >= 4000, I don't exercise the put and sell at market price, whereas if S_t < 4000, I exercise the put.
However, this way I have a -P cash flow at time 0. I was thinking of borrowing P at time 0, but this means I have to pay more in the future. So I am not sure how to fully hedge the position.
Thanks in advance!