Options Jive

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Correlation Risks

Options Jive

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

As traders we use correlations all the time, but what are some of the risks with them? Be sure to watch Tom and Tony go over risks in correlation!

We use correlation to:

  • Diversify underlyings in our portfolio
  • Diversify strategies in our portfolio
  • Hedge positions with multiple underlyings
  • Understand how correlation changes in sell offs
  • Pairs trade securities with strong negative or positive correlations

But with this heavy use of correlation, comes some risk:

  • Correlation describes direction not magnitude
  • Correlations are constantly changing
  • Assets become more correlated in a selloff

Tune in to hear Tom and Tony break down these common correlation risks!

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