Using Derivatives in Risk Management

John is a portfolio manager who oversees a diverse set of assets for a high-net-worth client. Recently, he has grown concerned about potential market volatility due to geopolitical tensions and economic uncertainty.

To mitigate the risks associated with market fluctuations, John is considering using derivatives as part of his risk management strategy. Discuss how John can utilize options and futures in his portfolio to manage risk effectively. Include specific examples of how these derivatives can be applied to hedge against market declines.

Additionally, evaluate the potential drawbacks and limitations of using derivatives in risk management.