Long-Term Market Risk Elimination
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The risk hedge is created with the purchase of a LEAPS put. If this were the only action, it would set up an insurance put, which eliminates risk below the net basis (strike of the put minus cost of the put). The second part of the risk hedge involves selling a series of extremely short-term puts or calls. Exploiting time decay, the intention is to generate numerous short-term profits as expiration date approaches. This strategy solves the problem of market risk when investors hold equity in their portfolios.