tastytrade has been working hard to provide targeted knowledge on building and managing accounts valued at approximately $250,000 to $2.5 million.

On this episode, hosts Tom Sosnoff and Tony Battista delve into one of the most important aspects of a larger account - strategies to consider for the portfolio.

In the episode immediately prior to the one covered in this post, Tom and Tony kicked off the conversation by discussing some guidelines for the portfolio's core position.

This week, they take the portfolio strategies topic one step further by highlighting possible "defined" and "undefined" allocations and examples of positions in each.

The graphic below provides a bird's eye view of the overall Top Dog sample portfolio:

topdogs090815portfolio-strategies_mstr-1.png

Using the remaining $30,000 in the account, the defined and undefined portion of the account focus on positions with the following characteristics:

  • Underlyings with high implied volatility rank
  • Highly liquid options markets
  • Underlyings in price extremes
  • Positions that offset directional exposure

After filtering the options market for the above conditions, Tom and Tony demonstrate the deployment of the "undefined" part of the portfolio.

The slide below illustrates the "undefined" nature of a portfolio which consists of exclusively short premium (unhedged) positions.  Please note the trades have been initiated in small quantities across companies in a wide range of sectors with large market capitalization (as well as an index):

Conversely, the "defined risk" portion of the portfolio is comprised of spreads and long premium positions which have unambiguous profit and loss parameters. The reduced risk of such positions means they require less up-front capital. In the “defined risk” category, the team is able to execute a greater number of absolute trades because they require less capital outlay per contract, as compared to the “undefined” category.

For example, we might see 8-15 positions within the undefined risk portfolio and closer to a firm 15 in the defined risk portfolio, depending on risk appetite.

The defined risk portfolio example from this episode of Top Dogs is shown below:

While the fourth and fifth episodes focused on potential strategies and composition of the portfolio, the sixth installment of the Top Dogs series provides insights on adjusting and managing them - and can be viewed by following this link.

We encourage you to watch the entire Top Dogs series to gain the best possible understanding of large accounts.

Any questions or feedback you might have on this or other tastytrade programming is greatly appreciated and can be shared with us in the comments below or by emailing support@tastytrade.com!

Happy trading!