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06
protect against a selected downside threshold
Define the drawdown you are unwilling to accept, and size the hedge against the exposure below that level.
what it protects
portfolio value below a chosen threshold
instrument
threshold-sized short on the dominant exposure
conditions
- a threshold is selected
- priced exposure exists
collateral
scales with the size of the protected band
costs
- lower cost than full protection
- no protection above the threshold
funding exposure
proportional to the smaller hedge notional
liquidation risk
reduced relative to full coverage
basis risk
the threshold is expressed in marks, and marks can be wrong
worked calculation
connect a wallet for live values
protected band
portfolio value × (1 − threshold)
hedge notional
protected band × protection %
no live values yet — the calculation runs against real balances only.