Lesson Overview

Beta Weighting Your Portfolio

While we know that individual stock beta is important to judge how responsive a security is to the overall market, being able to beta weight your entire portfolio is a great way to get a sense of how bearish or bullish you might be with your positions.

Knowing your portfolio beta weighted deltas also helps with entering new trades because you are able to constantly rebalance your positions adding new trades that help neutralize your deltas.

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  • Hey Larry – yes if you have negative SPX deltas then you would need a couple bullish positions to get back to neutral, you got it! You’re beta should normalize with ours over the year though I don’t always want it neutral each day. It’s okay to get a little directional but the key isn’t that we don’t have some crazy -150 beta weighted deltas. Anywhere in the range of -30 to +30 on the SPX is fairly neutral.

  • Prasad

    Hey Kirk,

    If my portfolio is bullish and has positive beta, what do you suggest to make it negative? Should I buy some Puts or Put Spreads? Please advice.

    Thank you,

    Prasad

    • That or start taking off positions that are profitable and bullish.

      • Prasad

        Okay, Thanks.

  • Valerie Bennett

    Thanks Kirk – this was the last step I needed to understand and as you said, the most important. Looks like I am way too bullish according to my TOS delta even though my thoughts are bearish. I know what I need to do tomorrow!

  • Marcus

    Hi Kirk, what has the most dramatic effect on beta weighting when trying to even out a bearish portfolio, debit spreads or calendars?

  • Shouldn’t be the case at all – I just looked at mine and the only difference is just in the value of the beta-weighted break even points. What specifically are you seeing as the differences?

  • Oh okay that’s perfect and as it should be. Remember the SPX is 10 times larger price wise than SPY so on a relative basis those numbers are the same one is just looking at hedging with SPY and the other hedging with SPX – make sense?

    • Dan Amedro

      Sort of, but what should the beta weight “target” be then? The target is zero delta whichever (spx or spy) is being used, correct?

      • Ideally yes but it will be a constantly moving target as your positions move in as the market moves. For this reason I generally prefer to look at the beta weighted risk diagram.

      • Dan Amedro

        OK, thanks

  • You’d have to manually do the beta calculations yourself.

  • No since it’s a pain to do so I would just search online in google.

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