I'm just getting into trading options. I think it would be sensible to ensure that my multiple outstanding trades at any given time are not correlated so that if I lose on one, I am not more likely to lose on another in a short timespan. However, calculating the correlation between options trades seems much more complicated than calculating the correlation between equities. Not only does one have to consider the correlation between the underlying asset price, but also the implied volatility. Moreover, some strategies have highly non-linear returns.

Is correlation something I should be worried about? If so, how do people typically approach this?

1 Answer 1


Every option strategy has a non linear return prior to expiration because option pricing is non linear as are the resultant Greeks (theta, delta, etc.). Only the result at expiration is linear when delta approaches one or zero.

If your concern is a concentrated win/loss rate then you should be utilizing a blend of bullish and bearish strategies.

Options are derivatives that track the underlying. That's the primary correlation that you should be concerned with. Much of this depends on how you're using options. Buying them? Selling them? Spreads? Trading volatility? In the end, you need to get the timing and selection right.

  • a blend of bullish and bearish strategies can still be correlated thought, right? just inversely so...
    – Ashish
    Mar 31, 2020 at 14:59
  • @Ashish - You can approach your analysis in any way that you want but I think that you need to work from the ground up rather than from top down. All the statistical analysis in the world isn't going to help you if you can't get the timing and selection right and utilize the appropriate option strategies. Mar 31, 2020 at 16:05

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