Private Wealth CFAI 2014 exam

[cipherap15]

Question states that the cost of a put option strategt is 2 million(High). Asks if there is alternatives to reduce the cost of hedgin by using different put options. And a disadvantage for each
They mention in the answers, Knock out put, Put spread and using puts with lower strike prices as alternatives. Then they mentioned a disadvantage for each.
I said using a cashless collar or a prepaid forward as options to reduce the COST of HEDGINg. Wasn’t mentioned in the solutions. A collar has a put option in it and I said that a disadvantage of it is, that it has limited upside gain.
Why is a collar and prepaid forward not mentioned as an optoin for hedging in the answer?
It’s the 2014 exam.

 

[knight90]

You were only supposed to use put options in your answer.. I went with buy a put further out of the money, obvious drawback is less protection.. And sell a put option further out of the money to make up some of premium for the put you purchased.

 

[cipherap15]

Yeah. Zero collar would work and it does have a put option in it. What’s frustrating is I would have lost all those marks because they want ONLY put options.
Need to be careful