What is a derivatives overlay?

A set of derivatives positions layered on an existing portfolio to change its payoff without trading the underlying: adding a floor, selling upside the holder does not need, adding convexity into a catalyst, or neutralizing an exposure the portfolio carries by accident. The overlay is sized to the portfolio's limits and reviewed on a fixed schedule.

How do you run a tail-risk hedge without bleeding premium?

Not by buying the cheapest-looking far out-of-the-money puts every month. Tail programs that last are funded deliberately: put spreads instead of outright puts, partial financing from upside the holder does not need, tenor matched to the risk window, and a written rule for when to monetize. Some cost is unavoidable; the point is that the investment committee chose it in advance.

Which asset classes do you cover?

Equity and index volatility, single-stock and event options, rates, FX, commodities, credit-sensitive structures, and digital assets. The instrument follows the exposure: listed options, futures, swaps, forwards, or OTC structures, whichever expresses the view or the hedge most cleanly at the lowest all-in cost.

Can you help with a concentrated or restricted stock position?

Yes. Collars, put spreads, and forward structures can protect a position the holder cannot or will not sell. Lockups, trading windows, affiliate status, and tax treatment all constrain what is possible, so we structure around the answers the client's own counsel provides rather than around a generic template.

Does Gammon Capital trade on our behalf?

No. Gammon is a non-discretionary advisor. Gammon designs the structure and runs the pricing process with you; you approve every trade, execute in your own name, and keep custody and counterparty relationships. Gammon is paid by the client, not the spread.

Who is eligible to engage Gammon?

Engagements are limited to accredited investors, qualified clients, and qualified eligible persons. Typical institutional clients are hedge funds, single- and multi-family offices, endowments, and foundations with an entity able to sign trading documentation.

Practice · Institutional

Derivatives overlays, tail-risk hedging, and event structures.

For hedge funds, family offices, endowments, and foundations. Gammon designs; the client implements.

Cross-asset derivatives advice applied to the portfolio you already run: equity and index volatility, single-stock and event options, rates, FX, commodities, credit-sensitive structures, and digital assets. Long, short, structured, or layered, sized to the book, governed by policy, and priced across multiple dealers. Gammon is a non-discretionary advisor. We never take custody, and we are paid by the client, not the spread.

Schedule a call

Engagements are limited to accredited investors, qualified clients, and qualified eligible persons.

Pain → Posture

What changes when the program is built right.

From

A hedge book that bleeds premium every month, gets cut after a quiet quarter, and is gone before the move it was bought for.

A tail program with a written budget, a monetization rule, and a cost the investment committee chose in advance.

From

Structures priced by the same desk that designed them, with no record of where else the trade could have printed.

A design built independently, bid out across multiple dealers, and documented so the all-in cost can be defended to the IC and to ODD.

From

A derivatives program that lives in one analyst's head and resets every time that analyst moves on.

One framework, a sizing rule in writing, and reporting the next analyst, the CIO, and the board can all read from.

What we do for institutional capital

A derivatives program shaped to the book you already run.

Overlay design

Long, short, structured, or layered. An overlay sized to the underlying book's actual Greeks and limits, mapped cleanly to the risk system, and reviewed on a fixed schedule.

Tail-risk hedging programs

A standing program, not a trade. Budget, tenor, strike ladder, financing, and the rule for when protection gets monetized and when it gets rolled.

Event and catalyst structuring

Structures built around a dated event: earnings, regulatory rulings, deal closings, index changes, macro releases. Payoff shaped to the scenario set, not to the implied move alone.

Concentrated and restricted stock

Protection for a position the holder cannot or will not sell: collars, put spreads, and forward structures, built around lockups, trading windows, and holding periods. Tax and securities-law treatment stays with the client's counsel.

Volatility as an asset

Volatility held as a position in its own right: relative value across strikes, tenors, and underlyings, with dispersion as a capability where the book and the mandate support it.

Structured exposure and payoff design

A custom payoff for a specific view or liability, built from listed and OTC components, compared against the simplest structure that would do the same job.

Multi-dealer pricing and ISDA / CSA support

Competitive quotes across dealers and venues, all-in cost comparison of listed against OTC, and term review on ISDA, CSA, and confirmations before the client signs.

Governance and reporting

A written policy the IC or board approves, delegated authority within stated limits, and a reporting pack that explains what the program did and why, in language the LP letter can use.

Coverage

Across asset classes. The instrument follows the exposure.

The right answer is rarely a single instrument. We structure the cleanest expression of the hedge or the view, in whichever market prices it best.

Equity and index volatility

Index puts and put spreads, skew, term structure, and variance-style exposure. The core of the desk's background.

Single-stock and event options

Earnings, regulatory decisions, binary catalysts, mergers, and spin-offs. Special situations, where the distribution is not lognormal and the pricing model has to admit it.

Rates

Duration and curve exposure expressed through options and swaps, sized against the liabilities or the book the client already carries.

FX

Currency exposure from foreign holdings, commitments, or distributions, hedged with forwards and options where the cost of carry is stated up front.

Commodities

Energy, metals, and other commodity-linked exposure, including the operating-business exposure a family office inherits from its source of wealth.

Credit-sensitive structures

Convertibles, structured notes, and positions whose payoff depends on an issuer's balance sheet. We read the terms for the embedded options and the counterparty underneath.

Digital assets

One asset class among several. Bitcoin and ether options and futures, OTC structures on less liquid tokens, and the firm's dedicated treasury practice.

Digital-asset treasuries →Concentrated positions →

Who we work with

Hedge funds

Multi-strategy, macro, long/short, and event-driven books with a volatility budget, gross and net limits, and an LP base that reads the monthly letter.

The actual problems

›Tail hedges that bleed premium, get cut at the worst moment, and leave the book unprotected into the move they were bought for.
›An options overlay the risk system cannot map cleanly to the book's delta, gamma, and vega limits.
›Event exposure taken as outright stock risk when an options structure would have defined the loss and kept the upside.
›Execution concentrated with one dealer, with no record of where else the trade could have priced. Operational due diligence asks about it.

What we do

We design the overlay against the book's actual Greeks and limits, structure event exposure around the scenario set, compare listed and OTC execution on all-in cost, run the multi-dealer quote process alongside the PM, and document the program for the LP letter and the ODD questionnaire.

Who we work with

Family offices

Usually one dominant exposure: founder stock, a restricted position after a liquidity event, an operating business, or a single concentrated allocation held by a principal who does not want to sell.

The actual problems

›Concentration the principal accepts on the way up and cannot tolerate on the way down, with no pre-agreed level at which protection gets bought.
›Selling is expensive for reasons outside the market: tax lots, holding periods, lockups, affiliate status, and signaling. The hedge has to work without disposing of the asset.
›Exposure the portfolio does not show: the commodity, currency, or rate sensitivity of the business that created the wealth.
›Hedging programs that reset every time the investment analyst changes, because the logic lived in one person's head.

What we do

We write a short policy the principal signs, set trigger levels in advance, structure protection that keeps the position intact, coordinate with the family's tax and legal counsel on what the structure may and may not do, and leave a sizing rule the next analyst can run without rebuilding the thinking.

Who we work with

Endowments, foundations, and other institutional capital

Long-horizon pools with a spending rule, an investment committee that meets quarterly, and a board that has to understand anything with the word derivative in it.

The actual problems

›Drawdown risk measured against the spending rule and liquidity needs, not against a benchmark.
›External managers whose exposures overlap, so the total portfolio carries risk no single manager is hedging.
›Committee cycles measured in months do not fit hedges that roll on a schedule, so authority has to be delegated within limits the committee sets.
›Derivatives used rarely enough that the policy, the documentation, and the reporting have never been written down.

What we do

We draft the derivatives policy and delegated authority the committee approves, design overlays at the total-portfolio level, support the documentation process with dealers, and build reporting the IC and board read without a translator.

Common structures

Six structures, and when each one fits.

No structure is right by default. Each is chosen against the book, the liabilities, and the limits already in place, then bid out across multiple dealers before the client executes.

Collars

Long put financed by a short call. Fits a holder who must keep the position and will trade capped upside for a defined floor over a fixed period.

Put spreads

Long put, short lower-strike put. Fits when the risk is a specific drawdown band, such as a margin trigger, a spending threshold, or a covenant level, rather than a collapse.

Risk reversals

Sell a put to buy a call, or the reverse. Fits a client with a directional view who wants the richer side of the skew to pay for it; held on its own it adds risk rather than removing it, so size comes from policy, not conviction.

Prepaid variable forwards

Cash today against a future delivery of a variable number of shares, with a floor and a cap. Fits some concentrated holders who need liquidity without an outright sale today; eligibility and treatment are questions for the client's counsel before any terms are discussed.

Relative-value volatility

Calendar, skew, and cross-underlying trades, including dispersion where it fits. Fits a book that wants volatility exposure on purpose, with the correlation and liquidity risk stated in writing.

Proxy and index hedges

Hedging an illiquid exposure with a liquid index, sector, or related asset. Fits only when the relationship is stable enough to state the basis risk in writing before the trade.

Desk background

Built by an options trader, not a sales desk.

Gammon Capital was founded in 2015 in New York by Michael Mescher, who has spent twenty-plus years in options. He began on the floor at Chicago Trading Company, was Head of Special-Situations Options Volatility Trading at Barclays Capital (2008–2012), and was a Partner and equity options portfolio manager at Ronin Capital.

The career runs through equity volatility, special situations, biotech catalyst trading, and tail trades. He was one of the largest open-interest holders in triple-leveraged ETF options during the March 2020 COVID dislocation. That is the lens every institutional engagement is designed through. About the firm.

Division of labor

Gammon designs. The client implements.

The line is fixed so the advice stays independent of the execution.

What Gammon does

Designs the structure and sizes it against the book and the policy.
Runs pre-trade scenarios, including the path that hurts.
Runs the multi-dealer quote process with the client through the Strategic Treasury Network.
Reviews ISDA and CSA terms before the client signs.
Drafts the policy and the reporting the IC or board reads.

What the client does

Approves every trade. Nothing is executed on discretion.
Executes in its own name with its own counterparties.
Holds custody throughout; Gammon never holds assets.
Pays Gammon directly. Gammon is not paid by the spread.

Reference library

Reference pages for overlay and hedging decisions.

Questions

Frequently asked questions.

What is a derivatives overlay?: A set of derivatives positions layered on an existing portfolio to change its payoff without trading the underlying: adding a floor, selling upside the holder does not need, adding convexity into a catalyst, or neutralizing an exposure the portfolio carries by accident. The overlay is sized to the portfolio's limits and reviewed on a fixed schedule.
How do you run a tail-risk hedge without bleeding premium?: Not by buying the cheapest-looking far out-of-the-money puts every month. Tail programs that last are funded deliberately: put spreads instead of outright puts, partial financing from upside the holder does not need, tenor matched to the risk window, and a written rule for when to monetize. Some cost is unavoidable; the point is that the investment committee chose it in advance.
Which asset classes do you cover?: Equity and index volatility, single-stock and event options, rates, FX, commodities, credit-sensitive structures, and digital assets. The instrument follows the exposure: listed options, futures, swaps, forwards, or OTC structures, whichever expresses the view or the hedge most cleanly at the lowest all-in cost.
Can you help with a concentrated or restricted stock position?: Yes. Collars, put spreads, and forward structures can protect a position the holder cannot or will not sell. Lockups, trading windows, affiliate status, and tax treatment all constrain what is possible, so we structure around the answers the client's own counsel provides rather than around a generic template.
Does Gammon Capital trade on our behalf?: No. Gammon is a non-discretionary advisor. Gammon designs the structure and runs the pricing process with you; you approve every trade, execute in your own name, and keep custody and counterparty relationships. Gammon is paid by the client, not the spread.
Who is eligible to engage Gammon?: Engagements are limited to accredited investors, qualified clients, and qualified eligible persons. Typical institutional clients are hedge funds, single- and multi-family offices, endowments, and foundations with an entity able to sign trading documentation.

Talk to the desk.

Engagements are bespoke. Tell us about the book, the mandate, and the risk you're trying to shape, in whatever asset class it sits.

Schedule a call

Engagements are limited to accredited investors, qualified clients, and qualified eligible persons.

Derivatives, digital assets, and overlay strategies involve substantial risk, including the risk of total loss. Past performance is not indicative of future results.