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Hey everyone, Kirk here again at Option Alpha and welcome back to the daily call. On today’s daily call, I want to talk about why we should balance and Beta-weight our portfolio to the SaP. I use the SaP or particularly, SPY which is the small SaP 500 ETF or I say it’s small, but it’s not as big as the SPX. But I use the markets as a benchmark for what I do with my portfolio because I feel like having one guidepost to work off of is much more efficient and offers a lot clearer of discretion when you’re actually getting into new trades or adjusting existing trades. Here’s what I’m talking about. Most people, what they do when they start going into options trading is they worry about every single trade like it’s an independent piece, like this trade then that trade then that trade. While it’s important that you worry about every single trade, what’s more important is the overall portfolio. For me, I don’t care if I lose on trades 1 to 5 if I make money on 2, 4, 6, 7, 8, 9, 10. It doesn’t matter to me if one trade goes against me, but the overall portfolio still made money. We’ll still try to adjust that trade and I’ll still monitor them. I’m not just going to blindly turn an eye to it. But it’s not as important as the overall portfolio. When you Beta-weight and balance your portfolio, what you’re basically doing is you’re saying, “Okay, system trading platform, (whatever you use) take all of my positions and convert them as if they were one single SaP 500 or SPY position.” When you do that, now you look at the SaP and you say, “Okay, as long as the SaP trades between this level and that level, whatever combination I have in my portfolio now should make money.” That’s how we get that Beta-weighting or that balanced curve that we often go through or we actually go through every single weekend with elite members on our strategy calls. We look at our portfolio Beta-weighting and our balance and we ask ourselves things like, “Are we balanced? Are we more bullish than we need to be? Are we more bearish than we need to be?” That really helps give us one single guidepost instead of just making assumptions about where the market goes. In fact, in our weekly podcast, Show 104, we talked about how you can use pairs trading with balancing because Beta is really important. Because trading one thing bullish may not just help out and give you more bullish positions because if it’s got a negative Beta, that might actually work to your disadvantage if you need a bullish position. For me, I think that you have to in this day and age, have to be balanced and you have to Beta-weight to the market. I think balance is a must because we don’t know where the markets are going to go. I don’t know where they’re going to go. You certainly don’t know where they’re going to go and neither does anybody else. Some people guess where the markets are going to go and then they end up being right, but they’re never consistently right month after month, week after week, year after year. That’s really hard to do, so why do we keep trying to do this? Why do we keep trying to guess where the markets are going to go? Instead, why don’t we just be neutral in a range and say, “You know what? As long as the market can move up or down 200 points and I’ll still make money and I don’t care within that 200 point range if some trades win and some trades lose, as long as the whole portfolio generates income.” I think that’s what you should be concerned about more often than not. The other idea with balance and Beta-weight is that it helps us or directs us into finding new trades. Oftentimes, if we get on a weekly strategy call on Sunday nights with elite members and we find in our portfolio is bearish and tilt meaning that we make the most amount of money if the market actually drops with existing positions, we might lose some on that trade, we might win some on that trade, but generally, the portfolio makes money if the market drops. Well then, that leads us to believe that we don’t need any more bearish positions in our portfolio. Without that knowledge though, you might just go out and find a bunch of bearish positions, but if you knew that you already had a portfolio that was tilted bearish, meaning you make money if the market drops, then why don’t you go out and try to neutralize that impact by adding more bullish positions to give you a little bit more balance, to be a little bit more symmetric over the market. That’s a better way of going about that. If the market drops, you’re covered, but you need positions that make money if the market starts to rally again. I think that having that just awareness of being balanced or Beta-weighted to the market is so, so critical to your success. It’s one of the reasons why I continue right now at the time of this recording to stick with Thinkorswim versus transferring over to Tastyworks which we will eventually do once they release Beta-weighting and portfolio balancing. But they don’t have it at the time of this recording and once they do, then we’ll be over there. But I like Thinkorswim right now because it has that ability to Beta-weight my portfolio which I think is really important, is getting this whole game plan picture of all your positions at one time. Hopefully this discussion today was helpful. Again, just reenergize or re-tweak your thinking or thought process around balance and Beta-weighting. As always, if you guys got any questions, let me know. Shoot me an email or add a comment to the show.