http://www.elitetrader.com/vb/showthread.php?threadid=233645 Equity hedging has been mentioned many many times on ET, wanting to find good solutions. I now would like to propose a simple equity overlay system for discussion. I want the equity overlay hedge system to be not only effective, but also low cost (or even better: producing alpha ). To be effective, the overlay system will use an options-based model. The most simple approach is to buy long puts and constantly keep a long put position all the time, 24 hours/7 days/ 12 months. To be low cost, the overlay system has to find a way of generating (good) income in order to offset (partly or fully) or exceed the expensive premiums of the long puts. I plan to prove a (unique?) method through buying additional put options during (projected) down trends of price movement. The system is purposely designed, therefor these additional put options will produce enough incomes to cover (beyond!) the expenses of premiums in the long run. We consider the system peforms well when both its average annual cost and maximum annaul drawdown could be kept to an acceptable benchmark level. There are some short-bias hedge funds or CTAs. But I don't know whether they use any similar approach as this proposed options-based equity hedging system. Your comments/inputs would be welcome!