19 lines
1.3 KiB
Plaintext
19 lines
1.3 KiB
Plaintext
Managing Multiple-Class Risk
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Most traders hold option positions in more than one option class. As an
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aside, I recommend doing so, capital and experience permitting. In my
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experience, having positions in multiple classes psychologically allows for
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a certain level of detachment from each individual position. Most traders
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can make better decisions if they don’t have all their eggs in one basket.
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But holding a portfolio of option positions requires one more layer of risk
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management. The trader is concerned about the delta, gamma, theta, vega,
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and rho not only of each individual option class but also of the portfolio as a
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whole. The trader’s portfolio is actually one big position with a lot of
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moving parts. To keep it running like a well-oiled machine requires
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monitoring and maintaining each part to make sure they are working
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together. To have the individual trades work in harmony with one another, it
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is important to keep a well-balanced series of strategies.
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Option trading requires diversification, just like conventional linear stock
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trading or investing. Diversification of the option portfolio is easily
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measured by studying the portfolio greeks. By looking at the net greeks of
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the portfolio, the trader can get some idea of exposure to overall risk in
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terms of delta, gamma, theta, vega, and rho. |