9 Minute Read

Tackle Today: Beta Weighted Delta

October 11, 2021

By | No Comments

What a Tool!

Traders,

Let’s pick up on Thursday’s Delta message. We’ve established you can use this greek to measure the directional exposure of individual positions, but what about an entire portfolio? Wouldn’t it be nice to distill your account down to a single number that represents your overall exposure? Then, you could track it each day to know exactly how much money is on the line. You can also make adjustments as the market trends reverse if you don’t want to have as much risk when a downtrend arrives.

Unfortunately, you can’t simply add up the delta of each trade to get an aggregate number. The reason is two-fold. First, each stock trades at a different price such that a $1 move represents different percentages. Second, even if two securities did trade at the same price, they could possess different volatilities.

To combat both discrepancies, ThinkorSwim comes with a built-in feature called “beta weighting” which allows you to restate all your deltas in terms of a single underlier. In other words, if you beta weight to the S&P 500 Index ETF (SPY), then it will convert every position’s delta to SPY deltas. Once they’re stated in like terms, you can add them up to gauge the total portfolio exposure.

Many of our recent Tackle Today messages have discussed reducing risk in market portfolios. If you’ve done this by either exiting bullish trades or entering bearish trades, it will have reduced your beta weighted SPY delta.

#TeamTackle


Chart of the Day

Beta Weighted SPY Delta

TOS Thinkorswim beata weighted delta
Source: LPL Research

Here’s a hypothetical portfolio with delta beta weighted to SPY. The entire account has 186 SPY deltas. Thus, it rises/falls $186 for every $1 move in SPY. And since the Average True Range (ATR) for SPY is approximately $6, this portfolio could be expected to fluctuate around $1,116 per day.


Video of the day

Coach Frank’s Charts


Watch this clip where Coach Frank shares a few charts and discusses their potential trading setups on stocks like General Mills, Clorox, Kohls, Bank of Nova Scotia, IBM, and Option Care Health.


Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Weekend Reports

Watch the Stock, Options, Commodity, and Forex Reports to help you prepare for the week.


Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.


Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.

Chart Modal

Tackle Trading

Book a FREE Consultation

Sign up for a free consultation to build your Educational Plan.