Using Derivatives for Risk Management in an ETF Portfolio

Laura is a portfolio manager who has created a long position in a biotechnology sector-focused exchange-traded fund (ETF) for her client's investment portfolio. Recently, due to a potential regulatory change that could adversely affect the biotech industry, Laura is considering using derivatives to mitigate risk associated with this position. Her objective is to protect the portfolio's gains while retaining the ability to benefit from potential upside movements in the ETF.

Laura evaluates several derivative strategies, including buying put options on the ETF and selling call options against her long position. She wants to choose the strategy that best meets her client's risk tolerance and investment goals.