I came across a question on protecting that made me curious as to the potential solutions on dealing with concentrated portfolio positions ... Background:- If I have a significant position in a company - say 10% of Shares outstanding - so I am a major shareholder. This account for 20% of my Portfolio's NAV- so this is a concentrated position.- The daily traded volume is roughly 1% of the outstanding shares. - I expect the shares to appreciate 10-20% over medium term, but at the same time because of market conditions, I am afraid that the the stock might tank 30% or 40% because of market risk or idiosyncratic risk.- I don't want to sell my stock immediately, I just want to protect myself against a downside move and I am willing to give up the upside. - Historical vol and historical implied vol over 3-6 moths has ranged between 20-30%, assume dividends and interest rates at 0.Problem statement:How do I protect my position, given I want to be there for the appreciation of the stock but protect my downside at the same time.Considerations and my thoughts:* Amount of traded optoins in the listed optiosn markets is minimal compared to my exposure so I will probably have to go through a specialist broker to sell or an OTC deal on options with a market marker to hedge.* My position size (10% of the company) and the daily turnover (1% of shares outstanding) would be a major issue (besides the tax and legal issues, which is not my concern since this is a theoritical exercise)* I should try to diversify my concentrated position to diversify my market risk. Maybe I don't want to diversify more than a part of my position and just make the most of the current position. Part diversification could be offered by entering into exchange funds.* I cannot obviously sell the stock immediately in the market - because I would definitely move the market . * The obvious hedging strategy could be selling OTM calls and financing OTM puts (protections) with the premium (collars) . But buying/ selling of high delta options would move the market and hence creates a pratical problem . I believe market makers would be probably hesitant to quote on big notional sizes where the amount of stocks needed to hedge might potentially be several times the daily traded volume. (For eg a short 120% call and long 65% Put over 6 months might have a 0.25 delta and over 1Y a 0.40 delta ... representing 2.5 times and 4 times the daily traded volume for the initial hedge).* I could try to be long collars over multiple maturities so as to bucket my risk. * Or I could buy down and in knockout puts and sell up and out knock out calls to reduce the delta , hence the amount of shares that the marrket maker has to hedge, hence reduce the risk that the market maker moves the market with his hedging activities.* Another solution could be to find a proxy hedge ... try to do factor analysis on the stock .. (for example as done by Bloomberg Factor models), try to break down the stocks risk into market risk and non-factor risk .... and try to hedge partially the risk by using correlated instruments. Here I am a bit lost how to start with and any input to easily implement a proxy hedge would be highly appreciated. This obviously creates basis risk .. so has to be carefully thought over.Thx for your inputs.Aankz

The easiest answer is to just hedge against market risk using hedging instruments on broad-based indices. Beyond that, it is like asking for free legal advice on the internet. If you own 10% of a public company, it makes moresense to seek out a money manager or advisor who specializes in equity derivatives, for the same reason it pays to hire a specialist lawyer. p.s. My intention is not to close off responses, but just to stress that they are worth what you are paying for them. Likely I am belaboring the obvious, but a money manager might think long and hard about your situation; a responder here will think for 30 secs and then reply (no offense, guys). And BTW, in California, guys is gender-neutral

Thanks Alan .. That i something I am already looking at - the degree to which we could use indices to try to hedge the market risk.