For this segment of TastyBites, Tom and Tony show us how we use POP and correlation to size positions. When determining position size in a tastybite account, it is crucial to analyze our probability of profit and correlation of underlyings to current positions.
We typically see a tradeoff between POP and max profit potential; higher POP trades should be allotted a larger portion of your portfolio relative to low POP trades. We find the greater the POP, the smaller chance of us having multiple losses.
Interestingly, we seem to benefit from diversification, trading underlyings with little correlation to each other. Otherwise, it’s essentially the same trade.
Tune in for further detail on using these metrics when establishing and managing positions and your overall portfolio.
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