A market neutral hedge fund will establish a SHORT equity position. The best protection in a declining stock market would be provided by an: - short sale of stock! Don’t under stand this, i mean if it’s a hedge and there is already a SHORT equity position, why is the hedge not to have a long equity position?
that is how it works 130/30. They go long 130% of asset size and then short 30% of the asset size. Beta still keeps at 1 (130-30). You also make more money by shorting stock as compare to buying put. This is just one of the strategies of many HFs.
careful- i wouldn’t call a 130/30 fund a market neutral strategy. market neutral is where you’ll go long and short securities to try to essentially neutralize the general movement of the market while at the same time making bets on individual names on the long and short side to earn alpha, so beta of zero is what you’d aim for on a perfectly mkt neutral fund. maybe you go long coke, short pepsi. the question above- not sure you even have to care that much about what strategy your hedge fund is employing. if the market is going to go down, your cleanest/best hedge is going to be to short stocks. buying puts you pay a premium for and writing calls you limit your upside to the premium received for selling the call.
Boston and Banny, just wanted to pop in and tell you I miss you. Can’t wait to study with you guys again next year.
unless you’re tutoring a class for L3’ers, this ain’t gonna happen. ilvino, cfa has a nice ring to it. miss you too xoxoxoxoxoxo and hope all is well down in flo… rida.
^^ geez, I hope so! You’re going to dominate LII this time around - I am certain you’ll be receiving the gold star the CFAI awards to the top 1% of scores 
I guess I am here in L2 because I didn’t sign your “Pass Pledge”. Good luck for L3.
Thanks Boston - I have every confidence you’ll nail it this time, with or without the pledge.
i understand that when the market goes down, the best thing is to go short. but in the sentence above it says "a market neutral hedge fund will establish a SHORT equity position. The best protection in a declining stock market would be provided by an: short sale of stock! so doesnt that mean that the fund has already established a short equity position, why is additonaly short seeling a stock. isn’t this a double statement??sorry maybe its the english language!