In this week's episode, sprocket888 and viperxl007 look at risk management. Understanding the risk in your portfolio can take a lot of work. There are many different types of asset classes as well as financial products. All this variety can make it hard to compare apples to apples between trading vehicles. Two concepts are discussed to help demystify this. The first is understanding the overall delta of your portfolio. The second is to combine this figure with beta weighting. The combination of these two actions can help objectively look at your portfolio's directional risk. Looking at the delta values of your holistic portfolio will provide you with an objective measure of directional risk. When you take your portfolio and beta weight against something like an index AND look at the delta, you will see a complete directional risk picture.

  • 00:00 Disclaimer
  • 00:18 Intro
  • 01:37 Risk Management: The differentiator between mediocracy and greatness
  • 02:48 Consistency is key
  • 04:31 Objectivity of 'what is in my basket?" is key
  • 05:27 Delta is a measure of directional risk
  • 07:33 You can measure delta against anything
  • 09:16 Portfolio delta: Measuring total directional risk for the 'whole enchilada.'
  • 10:55 Know your delta, know your risk
  • 14:43 The delta can help you understand your portfolio view on the market
  • 15:25 sprocket888 uses the delta to keep his portfolio comfortable
  • 16:32 You can trim deltas by trimming positions
  • 17:10 You can also adjust deltas by searching for holdings that will give you the deltas you need
  • 17:51 Shorting an index can help reduce delta /MES trade
  • 18:30 Can you make money with a low delta?
  • 19:08 Premium selling, profiting from neutrality
  • 19:46 /RTY profiting from a zero delta trade
  • 21:22 sprocket888 shares the targets of his portfolio's metadata statistics
  • 23:49 Delta is not just about premium selling. It is useful in MANY aspects of risk management
  • 24:37 Looking graphically at sprocket888s portfolio P/L and delta
  • 26:29 Reducing risk while preserving profit
  • 27:17 Use your broker's tools to visualize how deltas will change with the price
  • 29:31 Delta neutral is certainly not 100% passive
  • 30:21 The real takeaway is that knowing your delta will help you manage your risk level comfort
  • 32:10 Delta and Beta Weighting are tools for you to leverage to YOUR style
  • 34:02 You can beta weight against anything, but a related index is usually best
  • 35:34 Conclusion: Risk mitigation is a differentiator. Know your delta know your risk
  • 37:36 Outro

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