From Theory To Practice - March 23, 2021 - Smoother Rides with Indexes

published 4 weeks ago by tastytrade, Inc.

As we look to add some positions today and boost our occurrences, we are reminded of one of the core axioms of the market: that indexes always provide smoother returns than individual stocks.  This makes sense as equity indexes are only exposed to the systematic risk of the market, while individual stocks are also exposed to the unsystematic risk of that individual company.  Interestingly enough, however, other indexes, such as TLT, GLD, or USO share characteristics that are both systematic and unsystematic in nature. In our potential Short Strangle in TLT, we discuss this exact phenomenon.

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