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I'm working on a client memo explaining several approaches to equity hedging, and I'm looking for a not-too-technical term for a hedging strategy where I try to keep options near the money, as to have a quickly reacting hedge, expensive, but drastically reduced drawdown (hopefully).

Of course, the opposite would simply be called tail-risk hedge, but what if I tighten the moneyness? I was thinking about core hedge, near-the-money hedge, continuously adjusted hedge, ...

Obviously this is just a marketing buzzword, but is there some established word that will be understood by most? Also, clients are not too technical, so it may well be a fuzzy word, or not 100% accurate.

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  • $\begingroup$ Thanks for your ideas so far. It seems some clarification is necessary: The focus should lie on protective puts near the money, as opposed to far out of the money, which only hedges tail risk. For now, I'm using the term "near-the-money hedge". One could also imagine other instruments, e.g. cds payer swaptions, to implement it. $\endgroup$ – zuiqo Jul 25 '14 at 8:34
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If you are already long the stock, the way to hedge that risk is to go long a put and short a call, or what we call a option collar. This is also know as a "hedge wrapper" if you are trying to go for the marketing buzzword.

Per Investopedia:

The purchase of an out-of-the money put option is what protects the underlying shares from a large downward move and locks in the profit. The price paid to buy the puts is lowered by amount of premium that is collect by selling the out of the money call. The ultimate goal of this position is that the underlying stock continues to rise until the written strike is reached.

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The "not too techincal" term is the protective put. It usually applies to buying 1 put per 100 shares of stock owned, but you can explain that you hedge less, if you don't put on the full protective put.

The technical term is delta hedging. I have used this term with less sophisticated clients after I explained what it meant.

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