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Options Jive

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Demonstrating Diversification

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.

Finance students and traders always hear about diversification, usually in the form of some analogy regarding eggs and baskets.

In this piece, Tom and Tony demonstrate one form of diversification; stock selection. Using a $1,000,000 portfolio and individual stocks, they discuss how adding more unrelated constituents to a portfolio provides diversification by lowering the annualized returns but also lowering the volatility of returns.

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