Options Jive

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What Happens in a Market Correction?

Options Jive

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

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