For this segment of Options Jive, Tom and Tony discuss what happens in a market correction. In the middle of a bull market, it’s easy to forget what a recession looks like.
When the market makes a correction one hidden risk is that diverse assets become more correlated. Also during a down turn, strategies also tend to become more correlated, adding to the difficulties of diversification.
One benefit of trading a market correction is the rich premium we can take due to high IV. Tips to help avoid excess drawdowns:
• Keep position sizing consistent and rebalance portfolio as needed
• Avoid single stocks, stick to indices
• Diversify across multiple asset classes
• Use a mix of defined and Undefined Risk Strategies
• Stay mechanical