Derivatives Strategy

This report evaluates the efficacy of traditional hedging assets versus derivative-based strategies in light of recent structural market shifts. It advocates for active management of option overlays and a reassessment of classic diversification models like the 60/40 portfolio.

Key Takeaways

• 1.Traditional safe haven assets like bonds and gold have provided inconsistent protection during recent market sell-offs.
• 2.An active management approach to option-based hedging is increasingly critical due to rapid mini-volatility cycles.
• 3.The stock-bond correlation has shifted structurally, diminishing the diversification benefits of a traditional 60/40 portfolio.

Table of Contents

• Time to rethink portfolio hedges
• Diversification, lost in translation
• The hedging framework
• Traditional proxy hedges fail to deliver consistent protection
• Derivative strategies: Timing and early monetization remain key
• How to hedge a portfolio going forward
• Is duration still a dependable hedge?
• Back-test disclaimer
• Main risks of investing in options
• Global asset class preferences definitions
• Appendix

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