Schweser Exam 3 Question 8 AM, says that a protective can facilitate a high LTV loan (since it is a hedged position). Though factually correct, this is NEVER mention in the curriculum and long puts alone are not under their 'Equitizing Strategy" section. Anyone else agree that is more of an downside insurance strategy than an equitizing/diversification strategy?
Protective put is just portfolio insurance (hedging) strategy, not a return enhancement (or monetization) strategy. At least is also costly strategy. But may be combined with covered call to create a collar which will reduce the hedging costs.
Yeah the curriculum doesn’t list protective puts as one of the equity monetization strategies, but it is discussed just after that section in 4.3.2.1 (page 348) of Reading 11 under hedging strategies. Probably just a poorly framed Schweser practice question and answer. But it got you thinking about it, and it got me to open the book and look, so it wasn’t a total loss. 