Lesson Overview

Diversify Across Options Strategies

When you start to trade more often and with more positions, diversifying across different strategies become important. And while we want to focus on premium selling strategies we don't want to be a "1-trick" pony.

Ideally each month we'd love to have strategies that profit from all types of market moves; call calendars, put calendars, iron condors, strangles, etc. This gives us an opportunity each week to hopefully close some sort of profitable position.

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  • Andrew

    Hey Kirk,

    This is great (as always). Any quick direction on how to setup the position statement to group by type of trade as you have it? I’ve been able to get close to it, but the platform is still grouping all “Verticals” together rather than credit spreads vs. debit spreads, etc.

    • Sure in the top right and corner of the position statement you want to group by trade and group by “none” which will allow you to create your own names for groups.

Show Video Transcript +

In today's video, I want to talk about diversifying across different strategies. We’ve already talked so much, and we’ve done podcast episodes on diversifying your trades across uncorrelated assets, so not making all of your trades in social media stocks or oil stocks or banking stocks.

But diversifying across different sectors. We’re also going to talk about diversifying your portfolio across different types of options strategies. The benefit to doing this is that you are hopefully able to profit from whatever move the market makes.

The idea is that you have trades that profit if the market goes up, profit if the market goes down, profit if volatility contracts or expands, whatever the case is.

You have traded on either side of every type of situation at least at some level, so that you have an opportunity to take off winners consistently throughout the month. This is a look at our actual account right now just as of today.

The way that I do it with my position statements is I go ahead and group everything by the option strategy type. That’s just something that I do. I find that that’s very easy for me to go ahead and throw a new trade into a group.

But you can see, I have put debit spreads and call debit spreads, put credit spreads and call credit spreads, calendars, butterflies, iron condors, etcetera.

Right now, as of this video, we don't have any debit spreads in either puts or calls because implied volatility is very high, so there’s no need to have any of those, but we do have some credit spreads, we’ve got an IWM credit spread that we’re working and three call credit spreads.

This is important because now we know we can make money on either direction on the market because we’ve got positions on either side.

But if we wanted to go in and add some positions, now I can see visually that I maybe want to add maybe a couple of more put credit spreads just to balance things out here.

Not to say that you have to be 100% balanced all the time, but in this case, I might be a little bit too over-allocated in call credit spreads, I might want to go in and start adding a couple of put credit spreads into my portfolio.

The same thing too is true with volatility. As we talked about directionally with the market with the calls and puts, we also have some calendars that are working right now. We’ve got calendars in EEM and EWZ, and these positions will profit if implied volatility rises further.

It’s already at a high level, but we do have a couple that will just profit if implied volatility gets high, but then the bulk of our positions right now are in iron condors because the market has high implied volatility.

So we want to take advantage of that by selling some premium all around the market. This is just a quick way of looking at your portfolio. Try to be as diversified as you can with both underlying assets, meaning social media, oil, banking, whatever.

Diversify across those, but also try to be as diversified as you can across different strategies. Hopefully, this has been helpful just to get a glimpse inside of what we do here at Option Alpha and what I do with my personal portfolio as far as categorizing and blocking different types of trades.

So I know if I'm overweighed in one section or another. If you have any comments or questions, go ahead and add them right below this video to the comment section. Happy trading!

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