When we are keeping primarily short premium positions in our portfolio, it is important to us to ensure that our portfolio is diversified. Over the years, we at tastytrade have developed various paths that can lead to a diversified portfolio, and today Pete, Tony, and Frank review some of those diversification tools.Diversify by Underlying
Traders can use thebetween two stocks to see whether those two potential underlyings have historically moved together or had no real relationship.Diversify by Strategy
Strategies on the same underlying exhibit correlations as well, and we have used these relationships to diversify positions on an underlying that we tend to play often, like SPY and TLT.Diversify by Implied Volatility
We have recently been checking the correlation between stocks’indices to the end of diversifying the in our portfolio.Diversify by VIX
Finally, we have found that short premium trades on SPY, like shortand , have been much less correlated to movement in the VIX than short in VIX. This is because our short SPY premium trades are paid much more often via and lack of price movement than via VIX movement.