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Assess Your Positions’ Risk with Beta Weighting on thinkorswim

September 26, 2017
Beta Weighting

Comparing all of your positions can be a lot like looking at a bowl of different pieces of fruit. Not only are you weighing apples against oranges, but there are some bananas, grapes, and maybe in a few exotic types of fruit in there too. Beta weighting is a great way to place all of your positions into a single, standard unit. So instead of looking at a medley of fruit, suddenly you have a bowl of apples that you can more easily assess against each other.

“When you have a lot of positions, especially options positions, you don’t have a straightforward way to get an idea of how your positions will perform against the market,” says Chesley Spencer, Product Manager, Trading, for TD Ameritrade. “The Beta Weighting tool lets you see how all your positions perform against a given index or symbol. You can see how it might perform in a week, or if volatility goes up. It gives you a really good overview.”

With beta weighting, traders can assess their various positions in terms of systemic or market risk. Beta is often used to measure the volatility of a given stock against the volatility of an index. If, say, a stock tends to move a similar percentage to an index’s percent move, then that stock will have a beta of 1 when compared to the index. But if a stock moves a higher percentage than the index’s percent move, that stock’s Beta will be higher than 1 in comparison to the index. You can also use this same comparison between two stocks’ volatility.

Here’s a quick breakdown on how you can use the Beta Weighting tool on the thinkorswim ® platform.


How much risk do you have in your trading portfolio? Assess your positions' risk with the Beta Weighting tool. Source: thinkorswim. For illustrative purposes only.

In the Monitor section on the Activity and Positions sub-tab, you can see that each position has a different net shares, or delta. Delta is the approximation of the change in the price of an option relative to a change in the price of the underlying stock, with all other factors held constant. But because each stock has a different price and volatility, it can be difficult to assess overall risk on the portfolio. Here’s where beta weighting comes into play. It converts the delta or net shares of the position relative to an index or symbol.

Find the Beta Weighting tool above your Positions Statement on the right side of the screen. Check the box, then enter the desired symbol to beta weight, or compare all positions relative to that symbol. Enter a stock symbol, or type a question mark to beta weight against an index, and then select the Indices tab for a list of index symbols. The delta or net shares for your portfolio will be represented as equivalent to whatever symbol you choose.

By beta weighting to the S&P 500 index, or SPX, you can view the relative risk to each position to movement of that index. At the bottom of the beta weighting chart is a net total delta for the portfolio, which represents the risk to the portfolio should the S&P 500 move up or down.

If you apply beta weighting and a symbol in your account returns NA, this may mean you hold a position that’s a mutual fund or newly issued stocks. You can request an NA be converted to a beta weighted number by selecting the Help tab at the top of the screen and contacting thinkorswim.

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