What strategy can investors use to hedge concentrated positions while retaining some upside potential?

Using long puts and cashless collars is an effective strategy for hedging concentrated positions while allowing for some upside potential. When an investor holds a concentrated position—meaning a significant amount of their wealth is tied to a single security—they face considerable risk if that security declines in value. Long puts allow the investor to purchase the right to sell their stock at a predetermined price, providing downside protection. If the stock price falls below this price, they can sell the stock at the higher strike price, thus limiting their losses.

A cashless collar further enhances this strategy. By simultaneously buying a put option and selling a call option, the investor can finance the cost of the put with the premium received from the call. This structure ensures that while the investor is protected against significant downside moves, they also retain some exposure to upside potential, as long as the stock price does not exceed the call option's strike price.

Through this method, investors can create a protective strategy that secures their investment against losses while still allowing for some level of appreciation in value. Other strategies, like investing in mutual funds or buying bonds, do not specifically address the need for downside protection tied to a single asset while maintaining potential upside in the same asset. Selling covered calls does allow for some income