Unit 4 · Level 3 · Portfolio hedging

Boss: The vol trader

Puts, collars and tail hedges: what protection really costs, and when it's worth it.

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What you get asked

You're bullish on a stock but demand a strictly capped worst case. From the whole course, which position fits?
League 1's founding idea still rules: the long option's premium is the whole worst case. The naked put and margin both leave the downside open.
The greeks from League 1: match each to what it measures
Four dials on every position. This league taught you that vega, the vol dial, is where professionals live.
A stock trades at €80 into earnings and the at-the-money straddle costs €4. Roughly what ± move in % is priced in?
€4 ÷ €80 = 5%. The market's own forecast, read straight off the chain: the first number a vol trader checks.
The 'smirk' on equity index options (puts richer than calls) exists because…
Black Monday taught the market that crashes are fast and ruinous. Skew is that lesson, still priced into every index chain almost four decades later.
Earnings land and the stock moves 4%, yet your bought straddle (which implied ±7%) loses money. Why?
Movement isn't the bet. Movement BEYOND the priced-in move is. The event premium you paid evaporated the moment uncertainty died.
A fund fears a rough quarter but won't sell its stocks. The cheapest broad fix from this league:
One trade, minimal cost, instantly reversible: futures doing the job they were born for. That's the course: from 'what is a call?' to reading the surface and hedging like a desk. Graduate, the vol trader is beaten. 🐜

Puts, collars and tail hedges: what protection really costs, and when it's worth it.