The idea worth investigating
FPM SPY-put house adaptation, June 21, 2012 to August 20, 2026. Each pair uses the same hedge cash flows and a monthly premium budget derived from 1% of the $1 million initial reference per year. Entries and sales include modeled option spreads, depth penalties and commissions; SPY is sold when necessary to fund purchases. Reinvestment uses the sale-session stock close. Cash interest, equity transaction costs and market impact are excluded. These are simulated sample differences, not estimated future gains.
Scope: a completed, repaired house experiment on one specified put ladder. It is not a replication of a proprietary tail-risk fund or the paper's theoretical model.
When a hedge pays during a selloff, it creates a choice. Keep the proceeds as cash, or use some of them to buy the asset that just fell. The second choice is attractive. Its incremental contribution still needs to be measured separately from the hedge's own payoff.
Vineer Bhansali and Joshua M. Davis develop the portfolio logic in Offensive Risk Management: Can Tail Risk Hedging Be Profitable? Their February 2010 manuscript explains how protection can support additional risk-taking. We tested one narrower implementation: a monthly SPY-put ladder that reinvests half of triggered sale proceeds. Original paper record
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The headline is the starting point. The subscriber analysis takes you through:
- All nine cash-versus-reinvestment pairs and the three roll-only controls.
- The comparison with unhedged SPY, including drawdown and funding.
- The accounting repairs and what this implementation does not test.
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