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Since you do 100% replication, I'm surprised that you are arguing for a small basket of stocks, or are you arguing against that -- I can't tell. Please clarify what you are saying. Here is how I am trying to interpret it: It is true that with less components the greater chance they will all...

Good question alassio, but your example has more serious problems. The SMI may not be traded. You need an ETF to sell. The general idea is good, but you would have to check whether the options on these European stocks have enough volume so that the cost of the spreads is not prohibitive.

Vol Guy, I like your post for many reasons and wish to clarify what you are saying. It appears that you now favor the positive dispersion -- just the reverse of where you started. I agree with you that the main purpose of the short position is to finance the long straddles. However, when...

IV_Trader, I know you told me to ignore this guy, but he keeps coming back with bad info from "back-in-the-day", and people who don't know better will be misinformed. Let's bring things up to date. The year is 2005. Options are traded electronically. I'll lay out the costs to do the full...

Relative to the index, XYZ's IV has maintained the same ratio, so in that respect it is neither cheap nor expensive. With regard to its historical IV, it would be difficult to make an assessment based on two "snapshot" data points. Unless we know the historical period of interest and the max...

IV Trader, Are you talking about a SV/IV ratio or just component IV compared to VIX? The question about why hedge if you can successfully pick winning straddles is a strategic question that needs to be discussed more. I think there are shades of gray. Perhaps you can share about why you...

Vol Guy, I believe that both of McMillan's methods for finding cheap vol are valid. If possible the IV/SV ratio should be <1. The IV should also be below its 1 year historical mean. Could you post a sentence or so from the Egar reference where you are getting the number of "names" (stocks)...

A naysayer without supporting data. Well let's see. Looking at the real time real money december quotes for djx, there is a spread of .05 to .10. That's $10 max. Of course you need more than one. The OEX spread is .50 ($50) and the XEO spread is .80 ($80), but you can probably split both...

When I first looked at the strategy, I had the opposite intuition. It did not make sense to me why reverse dispersion could work at all, given that index IV is usually rich, the nature of indexes themselves is to be relatively stable, while the propensity of index components is to disperse...

Agree with your comments about +dispersion. However, when the difference between index IV and the components is huge, that is all the more reason to do + dispersion, unless I misunderstand what kind of difference you mean. IV_Trader replies that the "huge ifference between index IV and basket...

New to options yet doing one of the most advanced strategies out there? I wonder if you realize that you are doing a reverse version of dispersion? The market environment usually -- and for the past few months -- has favoried the standard version of dispersion, sometimes called +dispersion...

Who is asking for proprietary information? Not me. Unless, of course, 100% of what you are doing is proprietary. Is that the case? If so, I understand that I have the privilege of conversing with one of those very rare individuals who is doing top secret stuff that no one else is doing, so...

Sillyness. When he who has knowledge refuses to share of it, even the most basic, thus endeth the thread.

riskarb, On one hand you say you are running straddles - I'm not sure what you mean by combos. I would have to assume based on your few words that you have long straddles on some stocks and short straddles on others. If this is not correct please say what you are doing. On the other hand...

Riskarb and others, What a surprise to find this thread. I have been trying to get more info on this subject for years. No one I have asked seems to know much about it, and most have not even heard of it. I beg to differ with the view that it is well-known. I have found it to be a...