Vinay Elite    Posts: 640 Joined: 12/9/2011 Location: Planet Earth  User Profile | I think this research article by Roni Israelov regarding Protective Puts is interesting and an eye opener: "Pathetic Protection: The Elusive Benefits of Protective Puts" In gist of this article is that conventional wisdom is that put options are effective drawdown protection tools. Unfortunately, in the typical use case, put options are quite ineffective at reducing drawdowns versus the simple alternative of statically reducing exposure to the underlying asset. Unless your option purchases and their maturities are timed just right around equity drawdowns, they may offer little downside protection. In fact, protective puts could make things worse by increasing rather than decreasing drawdowns and volatility per unit of expected return. If interested you can download the entire from the following link: https://www.aqr.com/-/media/AQR/Documents/Insights/Alternative-Thinking/AQR_Pathetic-Protection-The-Elusive-Benefits-of-Protective-Puts.pdf | |
