The statement buy&hold risk tolerance varies greater porportionately with wealth is correct or not? why?
curricum V6, Page 101, it mentions we get the loan, then sell the stock to pay back the loan is the way variable prepaid forward doing, I would like to know whether there is a forward contract invlved in this kind of strategy, if it is yes, what’s the re;ationship between forward and loan?
yes. the statement is from the book example.
buy and hold is do nothing strategies. so you have a initial floor and stock, and you leave them for gorwth.
if your stock grows, and you are not doing anything to reduce that position, your stock allocation will be higher and higher (or lower) and your risk tolerance will be higher(lower) accordingly.
i do not understand your second concern
the second question is regarding using variable prepaid forward to reduce the concentration of low cost basis stock risk, I want to know how forward contract is using
A variable prepaid as described in SS 16
There is no forward involved…
Buy a Collar, take a loan against value of the shares.
When the Loan comes due - pay off the loan by selling the shares (so reducing the concentrated position) and share the gains with the lender.
buy a collar? buy put and sell call or buy call sell put?
given a typical collar structure, say buy put at exercise price 15$ and sell call at exercise price 20
I’m thinking if buy a collar, then both upside and downside is limited, only between share price 15 to 20, have
directional payoff, below 15 (floor ) or above 20 $ (ceiling), payoff will be same.
then variable prepaid forward only be variable in the sense of 15 to 20?