Looking for input on running a persistent OTM put structure as a portfolio hedge!
u/Blue_Mushroom3100 ·
Reddit — r/options
· May 07, 2026 at 17:40
· ⬆ 7 pts
· 💬 8 comments
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Summary
Thread discusses hedging a long portfolio using persistent OTM put structures.
Top comment critiques sizing approach and suggests using delta-based sizing and spreads.
Comment recommends risk reversals and put spreads to reduce cost of protection.
Score7
Comments8
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[+5] u/Sideways-Sid: Good idea but a few bits from the OP don't make much sense.
\>...Sized at maybe 5-8% of total portfolio NAV, scaled up to 8% in elevated-vol regimes...
To protect a long portfolio, you want to be buying protection when price is high, vol is low and protection is cheap. You're not buying after the event that you're trying to protect against!
So your 5-8% of NAV will be significantly more than 8% after the event reduces the portfolio value by 25%, AND your puts are ItM.
Don't think in absolute terms, think in terms of delta as it will make sizing more straightforward.
Consider spreads to protect what you want to protect AND reduce cost. e.g. Long 1 Standard Deviation, Short 2 Standard Deviations if you're not concerned about tail risk beyond that.
Also, check out a Risk Reversal which is commonly used by institutions e.g. Long 25-delta Put & Short 25-delta Call, which can be opened for negligible cost if required.