Market Measures

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Correlation in Short Volatility

Market Measures

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Correlation is always changing and positions can be more correlated than we suspect. We can even have positions that are correlated even though the underlyings for these positions are uncorrelated.

  • 2008-Present, SPY and USO
  • 45 DTE
  • Short ATM Straddle in both underlyings
  • Managed at 25%

We see that when volatility is low, these two positions have a weak correlation to each other but when volatility picks up, these positions tend to show a much stronger correlation. We look to put positions on in higher IV, but this means putting on positions that are more correlated to one another.

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