Hedging on rcor

Market-Orchestrated Protective Put

Sun, 16 Aug 2026 00:00:00 +0000

Following the framework introduced in the case of the covered call strategy, we now turn to its complementary component: the protective put. If the covered call represents a form of risk monetization through the sale of convexity, then the protective put represents a form of distribution insurance through the purchase of convexity¹.

Decision Framework: The Zone of Acceptance Link to heading

A protective put is not merely an insurance overlay — it is a deliberate redefinition of the acceptance region of outcomes.

Beyond Empirical Correlation: A Structural VIX Decomposition Approach

Fri, 10 Jul 2026 00:00:00 +0000

Financial markets often exhibit a strong negative correlation between equity prices and the VIX index. While this relationship is usually measured empirically from historical observations, the construction of VIX itself suggests a different approach.

The VIX is not an arbitrary market indicator. It is explicitly defined as a weighted portfolio of out-of-the-money SPX options. Consequently, before attempting to estimate

$$ \mathrm{cor}(X,\mathrm{VIX}), $$

for some stock X, it is natural to first understand how VIX itself decomposes into option prices.

Covered Call as Risk Monetization

Mon, 23 Mar 2026 00:00:00 +0000

We launch a new series in which the term hedging goes beyond its classical interpretation as risk reduction, embracing a broader definition:

Hedging := the deliberate control of the distribution of outcomes through market instruments. This includes:

risk reduction (protective puts)
risk transfer (insurance-like structures)
risk monetization (covered calls)
adjustment of the payoff profile

Therefore, hedging can be formulated as a problem of decision over the shape of the outcome distribution, not merely over variance.