Beta Weight, Beta Exposure, and Total Delta Bot Decisions for Improved Portfolio Management

The March 2024 platform release includes new bot property recipes designed to help options traders manage our portfolios better. Last month’s release included bot and position beta weighting, a beta weight column in Trade Ideas, and a new beta weighting decision recipe for bots and positions.

The new recipes add the ability to evaluate a bot’s beta exposure and total delta and empower us with more ways to make risk management decisions dynamically inside an automation. We now have more visibility into our bot’s positions and their aggregate delta and beta and the ability to make decisions based on real-time portfolio information.

The first recipe upgrades an existing decision with additional bot-level information, including the bot’s beta weight and beta exposure.

Beta weight measures your bot’s open positions relative to SPY’s movement to help indicate the bot’s directional bias and helps us determine if our bot is potentially too bullish or too bearish. 

For example, if the bot’s beta-weighted delta is 20, it would theoretically experience a $20 gain if SPY moved up $1. We can use these values to add positions that balance the portfolio or manage existing positions.

Beta exposure takes the beta weight and divides it by the bot’s total allocation, which breaks it down into a percentage. So, if SPY’s price goes up by a certain amount, it will impact the portfolio by a certain percentage. Beta exposure might be more helpful because instead of using an arbitrary value, we can base it on a specific percentage, knowing that a move in SPY will reduce our bot’s P/L by say 1%.

We can use an automation to evaluate the bot’s beta exposure for all open trades and open a specific position type automatically to help balance the bot’s directional bias. If beta exposure is negative, we may want to open a bullish short put spread, for example.

The other new decision gives us the ability to reference beta exposure and total delta for a specific ticker symbol. The new variable for total delta evaluates the combined delta of all open positions. Positive deltas require a bullish move from the underlying symbol to gain profit; negative deltas need bearish price action.

Focusing on a symbol allows us to be more granular. For example, a bot may have open positions in multiple tickers. We can check a bot’s total delta for SPY only. Again, we could then use the information to open a position to help neutralize the bot’s delta exposure.