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Emerging Market Diversification

Market Measures

We’ve recently seen turbulence in the emerging markets; particularly in Brazil (EWZ). While EWW and EWZ diversify across multiple stocks, EEM serves is a more diversified portfolio, lending to lower daily volatility.

How does the added diversification of EEM play out in terms of premium collected and P/L results historically?

Study:

  • Compared at-the-money short Straddles in EEM, EWW, and EWZ
  • 2007 to present
  • All positions were managed at 25% or managed at expiration.

EEM exhibits the highest success rate and capital efficiency. This makes sense given the more diversified portfolio EWZ and EWW are more susceptible to outsized, country specific moves.

This doesn’t mean we ignore EWZ and EWW, however if the same opportunity of High IVR is present in all three, we may favor EEM.

Tune in for the full discussion with Tom and Tony!

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