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The cost of hedging against downside market risk
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Resumo(s)
What part of the upside would an investor have to give up to obtain some form of
continuous loss protection? In other words, what is the implicit cost of setting up a systematic
option-based protective strategy on an equity position?
The acquisition of a 15% out-of-the-money put can be financed by selling a call at the
same price. Our results suggest that such a strategy on an index can be costly and not necessarily
convenient: hedging all drops bigger than 15% on the S&P 500 index starting from 2012 would
have required to cap profits at 5.49%, on average.
Descrição
Palavras-chave
Portfolio insurance Costless collar Self-financing Put protection