Hi–why is this sentence true? It is from the Schweser. “For a fixed portfolio insurance horizon, using put options generally requires less rebalancing and monitoring than with the use of futures contracts.” I thought that with options you have to constantly readjust (buy/sell) to account for changing deltas. I am not really certain how often or why rebalancing occurs with futures. Thanks for any help!
I dont use Schweser, but i’m guessing the key here is the insurance concept. A put option sets a floor in terms of the asset you are hedging. A put sets the price at which you can sell the asset. A future can manage exposure to price changes, but its doesnt guarantee a price.
buying insurance with puts ( particularly out of money puts ) requires zero monitoring once the hedge decision is made. With futures you may have to roll the position ( more re-balancing ) and since you are exposed to upside as well as downside you need to monitor as well.