Portfolio insurance
A technique of the 1980s: portfolios were protected not by buying options but by selling futures automatically as the market fell.
How to read the number
The protection assumed there would always be somebody to sell to. When identical programmes fired on the same day, every seller stood on one side and no buyer appeared — which is how the fall of 1987 was amplified.
When the metric lies
Any protection that requires a trade during the fall depends on someone else's willingness to buy: insurance the holder must execute himself is worth less in a panic than it promised.
Also known as: dynamic hedging strategy