51: Single Positions vs. Overall Portfolio Management - Which Is More Important?

Show notes: http://optionalpha.com/show51

You're in a trade that's going bad and are thinking about adjusting your position. But before you do, how would that adjustment impact your overall portfolio management? Would it make your portfolio more bearish, more bullish, or have little effect at all?

Asking yourself this question above before adding or adjusting your positions gets to the heart of today's podcast episode. Too often I find that options traders who spend the bulk of their time concentrating on single trades that go bad, without any regard for the overall portfolio impact, actually cause more harm than is intended. They become so narrowly focused on making sure "this trade" doesn't lose money that they completely forget about the rest of the portfolio that is profitable.

Maybe they have a bearish trade that's going against them as the stock market rallies. And the first natural thought is to adjust this trade and protect them from the impact of the market rallying. But, if this is your only bearish trade in a portfolio full over five other bullish trades, why bother? Sure, adjusting this trade would help reduce risk in the single position, but the overall portfolio is already super-bullish that you'd just be putting yourself in an even bigger pickle should the rally halt and reverse course.

Today's episode challenges the popular saying, "What's good for the goose is good for the gander" because, in our opinion, the health of the overall portfolio is more important than any one, single option trade. Sorry little goose, we love you, but I'm okay sacrificing a couple of geese for the welfare of the flock.