How will you manage a black swan event?

[Yogesh_s]

I have written previously about insurance using option collar in the portfolio hedging thread.

Hedging Against Equity portfolio

Deep out of the money options are low cost but they also have a low delta. i.e. their price moves by a small margin compared to the price of the underlying. For a hedging entire downside risk, one needs to buy a large number of these options. If you subtract cost of such insurance from upside potential of the portfolio (which should be low, otherwise why would you insure?), you get close to risk free rate. That means, a completely hedged portfolio has the expected return of a risk free portfoli…

I will not recommend buying individual stock put options (and worse yet, sell calls) as these are significantly more costly as individual stocks are significantly more volatile than indexes.