Lesson

Portfolio Concentration | Options Educator

Measure sector, underlying, and Greek concentration before one catalyst can dominate portfolio risk.

In this lesson

Shared factors

  • Group positions by sector, catalyst, expiration and Greek, not by name.
  • Equal dollar sizes across correlated names are not diversification.
  • The number of positions is not the number of risks.

Measuring buckets

  • Bucket share = risk in the bucket ÷ risk in the whole book.
  • Measure every bucket with the same yardstick.
  • An expiration date or a net Greek can be the largest exposure in the book.

Setting limits

  • Set a limit for each bucket before the event, not during it.
  • Reduce concentration by changing the shared factor, and check where the risk lands.
  • More tickets on the same factor add count, not diversification.

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