Why would a pension fund or insurance company even consider selling stock index futures?

There are two reasons that are non-speculative to use futures and in particular index futures.

First, if you happen to need the index delivered or to have cash on hand at a particular date.

Second, it requires an inconvenient sum of money to buy proportionate amounts of the index. Further, some parts of the index tend to be a bit illiquid so buying up all 500 members of the S&P simultaneously could shift prices upward from the liquidity injection and likewise selling the actual members could in fact drain needed liquidity resulting in losses.

Since these futures settle in cash, there are no associated liquidity problems. It is like owning the index but without all the headaches.

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