Which strategy is commonly used for hedging a concentrated public equity position?

Purchasing puts is a commonly used strategy for hedging a concentrated public equity position because it provides downside protection for the underlying stock. When an investor holds a significant amount of a single stock, they face the risk of a significant decline in its value. By purchasing put options, an investor secures the right to sell their shares at a predetermined price (the strike price) before the option's expiration. This ensures that if the stock price falls below the strike price, the investor can still sell their shares at that higher price, thus limiting potential losses.

This strategy allows the investor to maintain their exposure to the stock's upside potential while effectively managing the risk of a downturn. It is particularly effective in volatile markets or when the investor believes there may be short-term declines in the stock's price.

In contrast, other options like selling short may not be appropriate for hedging a concentrated position since it involves selling borrowed shares and expecting to buy them back at a lower price, which can create additional risks and does not directly address the ownership of the shares. Investing in real estate does not correlate directly with the performance of the concentrated stock position and would typically not mitigate risks inherent in public equity exposure. Using options to purchase stocks does not provide a hedge but instead involves