Why collar is not suitalbe for manaing concentrated position? The solution shows
“The zero-premium collar would hedge the value of WEI position but would not diversify Lane’s equity position. Also, the zero-premium collar would essentially convert the WEI holding into a position with volatility not dissimilar to short-term bonds, over the collar’s duration, changing the effective asset allocation.”
My thought:
As long as the position is hedged, we can use the hedged position as collateral to borrow the money and invest, so we are able to diversify the portoflio?