Groundlearn / Glossary / Derivatives overlay
Derivatives overlay
A CFA term, defined in plain English with the distinction examiners test.
What it means
Adjusting a portfolio’s exposures with derivatives while leaving the underlying holdings untouched.
The exam angle
Cheaper and faster than trading the physicals, and it keeps the manager’s selection intact. It introduces basis risk and a margin obligation.
Where it appears in the syllabus
- Derivatives & Risk ManagementCFA Level III · exam weight 10–15% · Options strategies, swaps/forwards/futures strategies, currency management.
- Portfolio Management pathwayCFA Level III · exam weight 30–35% · Active equity, yield-curve and credit strategy, LDI, trade execution.
Related terms
- CollarHolding the underlying, buying a put and writing a call, bounding the outcome between a floor and a cap.
- Covered callHolding the underlying and writing a call against it, collecting the premium in exchange for capping the upside.
- Currency hedgingUsing forwards, futures or options to reduce a portfolio’s exposure to exchange rate movements on foreign assets.
- Protective putHolding the underlying and buying a put, which sets a floor under the position at the cost of the premium.
- StraddleBuying a call and a put at the same strike and expiry — a position on the size of a move rather than its direction.
- Active shareThe proportion of a portfolio’s holdings that differs from its benchmark, from 0% for an index fund to 100% for no…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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