> ## Documentation Index
> Fetch the complete documentation index at: https://docs.drakewell.fi/llms.txt
> Use this file to discover all available pages before exploring further.

# SPYdw risks: how a hedged SPY portfolio can lose value

> The main risks of holding SPYdw, including SPY market risk, collateral and option risk, hedge budget risk, and redemption timing by epoch.

SPYdw is hedged, not guaranteed. Its value can fall, including below the amount deposited. The floor is the value of the collateral, not a guaranteed minimum. This page sets out the main ways a holding in SPYdw can fall in value or be harder to exit.

> [!NOTE]
>
> `[TBC]` Draft for counsel review, including sign-off on the use of "floor".

## Market risk

SPYdw holds SPY exposure, so it can fall when SPY falls. The hedge manages that exposure but does not remove it. SPYdw's performance will differ from SPY's.

## Collateral risk

The floor is the value of the collateral. If the collateral loses value, including the assets that generate its yield, the floor falls with it.

## Option risk

S\&P 500 call options can expire without value if the index does not rise above their strike prices. When that happens, the yield spent on them is not recovered.

## Hedge budget risk

The hedge is paid for with the collateral's yield. If that yield falls, SPYdw has less to spend on options to manage its exposure to SPY.

## Redemption timing

Redemptions are processed at the next epoch, which can be up to 7 days away. Redeeming before the end of an epoch incurs an early-exit fee.

## Venue and counterparty risk

The options are held through TradFi prime brokers. A prime broker or other counterparty can fail or restrict access, which can affect the value of the options or delay redemptions.

## Smart contract risk

The SPYdw contracts and the oracles they rely on can contain defects, be exploited or behave unexpectedly.


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