Market Measures

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Diversification Using Sector ETFs

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Do sector ETFs present solid diversification for our short premium trades while still sticking with liquid, equity markets?

Study
  • Sold 1 Standard Deviation (16 delta) strangles in SPY, XLK, XLV, XLP, and XLU to observe how sector strangles performed when SPY strangles lost

  • Managed trades at 50% of credit received

  • 2010 to Present; 45 DTE options

We find that with non-correlated underlyings to the SPY, like XLU and XLP actually helped improve performance when the SPY lagged.

Checking correlation in the tastyworks platform as well as knowing the makeup of ETFs we trade is essential to having a diversified portfolio of stock or options trades.

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