Obviously, Strategy 3 is the riskiest amongst all. Having Long Credit Exposures, hinting that we are investing in the company’s debt. Risk of Counterparty default and at the same time, writing Options to generate premium income. If it goes south, it can be catastrophic for the firm. The same will have a significant tail risk and we might need more capital as a cushion.
Obviously, Strategy 3 is the riskiest amongst all. Having Long Credit Exposures, hinting that we are investing in the company’s debt. Risk of Counterparty default and at the same time, writing Options to generate premium income. If it goes south, it can be catastrophic for the firm. The same will have a significant tail risk and we might need more capital as a cushion.