We know that not all deltas are alike so when we created the thinkorswim platform we created portfolio beta weighting and you can learn what that means and how to best use it right here. All premium sellers can benefit from this.
A table of 3 different strategies in AAPL, DIA and TWTR were displayed. The table included the position and the individual delta on each strategy.
We have a total delta across all three positions of -17. That though does not give us our market risk. Beta weighting against an index gives us that. By weighting against SPY, our beta weighted delta is -31; a +$1 move in SPY will (in theory) change our account by -$31.
A second table of the same 3 strategies in AAPL, DIA and TWTR beta weighted against the SPY (S&P 500 ETF) were displayed. The table included the position, individual delta and SPY beta weighted delta on each strategy.
We need to examine the correlation between our individual positions and the SPY (because how it is calculated) to see how much or little emphasis we place on it. A 1-month correlation of AAPL, DIA and TWTR with the SPY was displayed. The correlation showed that AAPL and DIA had a high correlation but TWTR had a low correlation. See “What is Beta?” on Skinny on Options Data Science on July 29, 2015 for more information. A low correlation indicates that we should use the underlying to hedge and not use the SPY.
An example of the new TOS watchlist which now shows the correlation of individual stocks to the SPY was displayed and it was explained how to access this feature. The example also showed how to change the parameters to change to different indexes as well as how to change the parameters to a 1-month (i.e. 22 business days = 1 month).
Watch this segment of “Best Practices” with Tom Preston and Tony Battista for the takeaways and other important information on portfolio beta weighting and how to use this to improve your trading.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.
tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.
tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.
tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.
tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.
© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved. Applicable portions of the Terms of Use on tastylive.com apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.