dispersion using sectors ETFs

[lcs]

just throwing out an idea for discussion and have not thought very deeply abt it yet. pls feel free to give your comments/opinions

can we do a dispersion trade using sectors ETFs? so XLE, XLE, XLU, XLK, XLB, XLP, XLY, XLI, XLV against SPY

Pros:
1) less work/concern about choosing the single names
2) better liquidity? as i said, i have even start delving into it so i cannot comment and am just assuming
3) in times of crisis at least utilities should perform ok?

Cons:
A) its just the same as using single names except that the names are chosen for you and weights are fixed. i.e. cannot tailor make your single names basket

 

[newwurldmn]

You are trading a slightly different view than traditional dispersion.

You are taking the view that the stocks in each sector will be highly correlated with each other but the sectors won't be correlated with each other.

Optically the trades look very good.

Liquidity shouldn't be a concern for a retail account. Ease of trading and margin/balance sheet requirements should be.

 

[lcs]

stocks in each sector will be highly correlated with each other.

thks newwurldmn! i missed out this. cos otherwise there is no realized vol on the long legs!

so really more flexibility if we use single names or partial sector ETFs/partial single names

 

[sle]

It's a trade that's been looking good for years... for a good reason So, in short - nope. You are better off doing some proxy dispersion on top-10 or (even better) take the path unwalked and do dispersion on DIA.