Tasty Review: Portfolio Management

Options trading without effective portfolio management is a bit like canoeing without a paddle. You may make progress, but you probably won’t get close to achieving your ultimate goal.

One positive is that traders can improve their portfolio management proficiency, much like any skill can be practiced and mastered.

Experience obviously plays a big role in effective portfolio management. However, it’s not the only factor. One must also be cognizant of the tactics that encompass optimal portfolio management and make a concerted effort to acquire and develop these skills.

This speaks to why traders that embrace continuous learning are typically so successful in the industry - or in any industry, for that matter.

Much of the programming on the tastylive network is dedicated to portfolio management, which means the ability to acquire additional knowledge is literally at your fingertips.

Two great series on the tastylive network that highlight and reinforce the main concepts of portfolio management are Top Dogs and Top Dogs For Smaller Accounts. If you haven't already watched these episodes, we recommend you do so when your schedule allows.

Beyond those two series there are many other great sources of portfolio management information housed within the tastylive archives (as well as live programing).

However, before diving into those links, let's first review some of the most important portfolio management categories. These are tasks and considerations that active portfolio managers utilize to improve their probability of success:

Trade Deployment: This relates to your actual interaction with the market in terms of execution. Are you executing at the best possible prices? For example, if you are planning to deploy and position that involves both options and stock, how do you ensure that you trade in a manner that maximizes your price targets (and minimizes risk) on each leg of the trade?

Positional Risk: Once a position is fully deployed, what processes have you put in place to help you monitor the position for potentially increasing, reducing, or closing it (i.e. Managing winners/losers)? Or for hedging and/or rolling?

Portfolio Risk: How do you manage the net risk of your portfolio? Do you have targets for your portfolio Greeks (delta, gamma, theta, vega)? Do you have exceptions, and under what conditions?

Capital Allocation/Scaling: Are you scaling positions in accordance with your vision of capital allocation and risk? What are the grounds for exceptions to these rules, if any?

Expiration Strategy: What rules/processes govern your approach to expiring positions? In the week before? On the day of?

Special Circumstances: Are there conditions in the market that should trigger an increase or decrease in net risk exposure (i.e. "Brexit). If so, what is the process for setting and acting upon these signals? What other circumstances might dictate the need for specific behavioral responses?

While portfolio management can certainly mean different things to different people, the main point is that it involves the best practices, processes, and other guidelines by which you execute your individual strategy.

Airline pilots go through a detailed routine during their pre-flight inspection and follow specific guidelines/rules for take-off, flight, and landing. Close attention to these checklists and processes helps minimize the risk of negative outcomes to the smallest degree possible.

Certainly, trading as a profession inherently involves risk. However, by implementing and continuously improving a formal approach to portfolio management, traders can increase their probability of success, and minimize the risk of losses.

Included below is a list providing links to some of the portfolio management topics featured on the tastylive network. We hope this information helps you refine your approach and skills.

Additionally, both the “Learn” page and the search functionality on the tastylive website can be used to uncover additional information.

If you have any further questions or feedback on the topic of portfolio management please reach out at support@tastylive.com.

We look forward to hearing from you!

Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
 

Previously

Portfolio Management - Managing Winners/Losers (12/4/13)

Portfolio Management - The Greeks (6/5/15)