What does a short hedge with stock index futures aim to achieve?

A short hedge with stock index futures aims to offset expected stock market declines. This strategy is utilized by investors who have a long position in stocks and anticipate a downturn in the market. By selling stock index futures contracts, the investor can lock in current prices and limit potential losses due to falling market values. If the market does decline, the gains from the short futures position can help offset the losses in the stock portfolio, thereby providing a degree of protection against market fluctuations.

In contrast, the other options do not accurately reflect the purpose of a short hedge. Protecting against increasing stock prices would require a long hedge instead, as investors looking to benefit from rising prices would not use a short position. Generating income from stock price appreciation is also contrary to the intent of a short hedge, as it focuses on protection rather than income generation. Finally, trading options on stock indices does not relate to hedging a stock portfolio and represents a different financial instrument altogether.