Classic case of packaging tail risk in a pretty wrapper. The people buying these need to be very honest with themselves about how much of their book they're willing to see go to zero in a single event.
Tail risk here isn't the gotcha, the actual problem is correlation: when a big enough disaster hits, the broader market tanks too, so your "uncorrelated" hedge turns out to be anything but when you need it most.
Classic case of packaging tail risk in a pretty wrapper. The people buying these need to be very honest with themselves about how much of their book they're willing to see go to zero in a single event.
Tail risk here isn't the gotcha, the actual problem is correlation: when a big enough disaster hits, the broader market tanks too, so your "uncorrelated" hedge turns out to be anything but when you need it most.