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skew shape
- Thread starter clarodina
- Start date
Quote from bs2167:
Sorry, was referring to this setting up a dispersion trade. Assuming one wanted to have the risk on for the shortest period of time possible but still catch most of the index steepening, is there a sweet spot in terms of when to put it on?
It's essentially a microstructure condition and isn't exploitable in a down&out dispersion.
Quote from bs2167:
Sorry, was referring to this setting up a dispersion trade. Assuming one wanted to have the risk on for the shortest period of time possible but still catch most of the index steepening, is there a sweet spot in terms of when to put it on?
i wasn't being serious when i said "freaking" so hard to get sarcasm in text
are you guys talking about this
Volatility dispersion trading is a popular hedged strategy designed to take advantage of relative value differences in implied volatilities between an index and a basket of component stocks, looking for a high degree of dispersion. This strategy typically involves short option positions on an index, against which long option positions are taken on a set of components of the index. It is common to see a short straddle or near-ATM strangle on the index and long similar straddles or strangles on 30% to 40% of the stocks that make up the index. If maximum dispersion is realized, the strategy will make money on the long options on the individual stocks and will lose very little on the short option position on the index, since the latter would have moved very little. The strategy is typically a very low-premium strategy, with very low initial Delta and typically a small net long Vega.
Volatility dispersion trading is a popular hedged strategy designed to take advantage of relative value differences in implied volatilities between an index and a basket of component stocks, looking for a high degree of dispersion. This strategy typically involves short option positions on an index, against which long option positions are taken on a set of components of the index. It is common to see a short straddle or near-ATM strangle on the index and long similar straddles or strangles on 30% to 40% of the stocks that make up the index. If maximum dispersion is realized, the strategy will make money on the long options on the individual stocks and will lose very little on the short option position on the index, since the latter would have moved very little. The strategy is typically a very low-premium strategy, with very low initial Delta and typically a small net long Vega.
Quote from cdcaveman:
My intuition tells me that all these new ETF's especially in vix products.. there has to be some mispricings to exploit.. between them as well with roll cost..
Sure, but it's nothing to do with dispersion. Traditional (long) dispersion is short index, long component vol in which you're looking for up/downside outliers in your component vol (longs) which offset with limited impact on the index. The index skew trade is often automatic, you're not likely adjusting the index-side. Short the skew at say 20D and long component vols at 20D, as an example.