≈Else ruin awaits.≈
Traders,
The ongoing correction is introducing traders anew to risk. And it makes now a perfect time to refresh your memory on delta and beta weighting. Here’s a primer. Delta measures how much your trade makes or loses if the underlying stock rises $1. Bullish positions have a positive delta, and bearish positions have a negative delta.
For instance, if you have a 20 delta trade on Apple, and the tech titan climbs $1, you will make $20. I suggest looking at the stock’s average daily movement via the ATR indicator to set your expectations. Apple has an ATR of $3.11, which means your 20 delta trade will fluctuate approximately $62 a day. There are two key takeaways from understanding the math.
First, the higher your position delta, the bigger the swings in profit/loss.
Second, the higher the ATR, the bigger the swings in profit/loss.
Over time, you’ll discover your comfort level on how much fluctuation you can handle – provided, of course, you pay attention!
Consider monitoring the delta of each position as part of your daily routine. If you’re using ThinkorSwim, you can easily track it in the Monitor tab. Once you grasp how to follow the delta of each trade, you can graduate to doing so on your entire portfolio. For that, you need beta weighting. I’ll share more in tomorrow’s message.
#TeamTackle
Chart of the Day
Verizon Beckons
Verizon made a second appearance in Trade Masters this week. Apparently, Coach Mark and Tyler have similar tastes. So what do you say about VZ here? Do you find the significant support test and juicy 4.69% dividend yield as compelling as the coaches?
Video of the day
Trade Masters
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Today’s line up
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