Options Jive

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Diversifying Domestic Exposure

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.

Correlation ranges from -1 to 1 and measures the similarity of movement between two securities.

Traders should be mindful of diversification with regards to correlated assets when constructing their portfolio to reduce concentrated risk.

One way to diversify risk when trading multiple securities is to trade uncorrelated stocks. When domestic indices are correlated, two options for diversification are the emerging market ETFs, EWZ (Brazil) and FXI (China).

These ETFs provide low price and implied volatility correlations, which is useful for price diversification and reducing vega risk.

Tune in as Tom and Tony walk through some potential strategies for each of these products and if they prefer one over the other.

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