When downside protection works in drawdowns but quietly overpays every time it rolls.
Sector: Asset Management – Public Markets
Asset Class: Public Equities (Equity Index Options)
Situation Type: Systematic protective put overlays rolled mechanically at expiry
Primary Issue: Persistent roll-timing and execution drag embedded in expiry-window option rolls, converting governance-by-routine into cumulative return leakage despite a functioning hedge
The Situation
A diversified portfolio runs a systematic protective put overlay designed to cushion drawdowns while preserving core equity exposure.
From a risk perspective, the hedge works:
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Protection responds as expected during sell-offs
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Mandate objectives are met
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Downside behaviour is defensible
On paper, the overlay is behaving correctly.
In practice:
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Options are rolled mechanically at expiry
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Rolls occur in the same narrow liquidity windows
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Execution assumptions have never been revisited
The hedge design is sound. The operating model is not.
Why This Scenario Is Common
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Protective put overlays are approved on strikes, notionals, and protection objectives — not execution mechanics
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Expiry-day rolls become procedural defaults rather than economic decisions
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Execution costs are absorbed inside “premium spend” and rarely isolated
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Roll timing hardens into routine rather than being explicitly governed
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Accountability for execution economics is fragmented across PM, trading, and risk
The programme persists because it functions. The drag compounds because it is never owned.
Why It Matters
As the programme rolls repeatedly at expiry:
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Bid-ask spreads widen predictably in crowded windows
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Market depth collapses when liquidity is needed most
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Price impact compounds quarter after quarter
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Execution drag is silently absorbed inside option premiums
The overlay remains “effective.”
The portfolio simply pays more each cycle for protection it already believes it owns.
Over time, this leads to:
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Persistent but unexplained overlay underperformance
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Difficulty defending costs to IC and clients
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Divergence versus peers with governed roll frameworks
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Permanent return drag without improved protection quality
Value leaks without a single bad trade.
How This Is Typically Addressed
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Optimising strikes while ignoring execution mechanics
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Accepting roll costs as unavoidable or “market reality”
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Treating execution as operational rather than economic
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Leaving expiry-day rolls untouched to avoid governance complexity
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Deferring scrutiny until performance pressure forces questions
These approaches preserve simplicity – and entrench leakage.
Primary Engagement Route
Primary Offer: Structuring-as-a-Service™
Secondary / Bespoke: Options Expiry Management Programme – overlay operating design, roll governance, and execution discipline that makes overpayment structurally impossible while preserving protection integrity.
Read the IC Brief → (2-page decision summary)
Full structural narrative shared selectively on request.
Illustrative scenario for discussion purposes only. Not a transaction summary or client-specific case study.