Diversification with options is a critical component to success. We can diversify by the following:
- Implied Volatility
- Trading Small
Diversify by Underlying
Selling premium on various uncorrelated underlyings provides a cushion to protect against constructing a portfolio of all winners or all losers for a given cycle.
Diversify by Strategy
Strategies have historical correlations; this is used so that returns from various positions are not too correlated.
Trade small with multiple underlyings
This helps to mitigate the binary nature of single stock risk.
Join Tom and Tony in today’s tastybite as they walk us through this basic but critical component of trading.