What Software for volatility dispersion strategy?

R

Rudolf13100

Hello,

New to option I was wondering what software one can use for dispersion trading. On Ivolatility.com there is an application that can be used for dispersion trading and that cost $400/month. What about software such as ProfitSource, OptionVue, Optionetics... Can those software provide all necessary tools for dispersion trading? Any recommendation?

Thanks,

Rudolf.
 
retail cant make money off this. as far as software you just need the implied vol of the index and the implied vol of the underlyings.
 
What you really need to make dispersion work is access to order flow. Since now there are so many firms running dispersion the real edge in dispersion is has been shaved to the bone and you need to do it in big size which you're not going to be able to do as a reatil trader.

If you're an electronic market maker in dozens of books and you also make markets in the appropriate indexs then you manage your risk via dispersion but its not nearly as profitable as it was 6 or 7 years ago since so many firms are in that game now.

Honestly if 400 bucks a month sounds steep then dispersion is not for you or any other individual trader for that matter.
 
Xflat, your message makes a lot of sense.
I was looking for a non directional strategy and dispersion trading sounded appealing for that matter. But, indeed it might not be a strategy for the individual trader.
Knowing that I am looking forward to learn a non (price) directional strategy please don't hesitate making a suggestion as to what strategy I could look into.
 
Quote from Rudolf13100:

Xflat, your message makes a lot of sense.
I was looking for a non directional strategy and dispersion trading sounded appealing for that matter. But, indeed it might not be a strategy for the individual trader.
Knowing that I am looking forward to learn a non (price) directional strategy please don't hesitate making a suggestion as to what strategy I could look into.
More...

Rudolf - what you want to find is anomalies in IV relationships. If you are familiar with the normal IV relationships between strikes or between months in certain stocks, and those get out of line for whatever reason (news, upcoming announcement, disruptions in that company's sector, etc.) you make a play betting that the normal relationship will return. Or if IV gets to a historical extreme for that stock, you can make a play betting that won't last. For that you need a good understanding of greeks.

Uncovering such opportunities requires a lot of work. Personally though, I don't see how else you get an edge as a retail trader doing non-price-directional plays. I see a lot of people here looking for some magic position that will put the odds on their side even when a stock's options are trading as they usually do. I wish everyone luck, but I'm skeptical.
 
I agree with DMO again, I dont see any true edge as far as mispricing or incorrect vol spreads which a retial guy would take advantage of these days.

As far as delta neutral positions go there is a great deal written about these types of positions, stuff like iron condors and various time spreads and a plethora of other well documented positions. Essentially you're trading one kind of risk, for another. As in you're limiting delta risk for vega risk or one of the other risks associated with options. There is no such thing as a free lunch. In order to make returns in excess of the risk free rate you have to manage some risk in some form.

If someone claims they trade risk free, dont believe them. If that were the case the global capital markets as we know them would no longer exist.

Good luck
 
I really appreciate all your replies. Also, I need to tell you more about the situation so you can advise me knowing the ful picture.
I am trying to diversify my assets as much as I can to build a diversified market portfolio.@‚h@have invested in diverse ETFs (domestic, foreign, stocks, bonds, commodities), I have some real estate, and I am now trying to see how I could diversify further.
I am trying to see if I could use delta neutral position and use the convexity of options to further diversify my total portfolio's returns.
Given the above information, what is your opinion?

P.S: let's not go into hedge fund investing at the moment.
 
Dispersion trading is not the type of position you're going to set and just monitor. Its a strategy which is profitable mostly when you trade it actively. That involves a lot of order flow information and trading.

You may want to consider something like Iron Condors on major market indexes, which can be fairly delta neutral, but again its not a set and forget type of position. It too, requires monitoring and adjustments, with a fair degree of discipline.

Good luck
 
Quote from dmo:

Rudolf - what you want to find is anomalies in IV relationships. If you are familiar with the normal IV relationships between strikes or between months in certain stocks, and those get out of line for whatever reason (news, upcoming announcement, disruptions in that company's sector, etc.) you make a play betting that the normal relationship will return. Or if IV gets to a historical extreme for that stock, you can make a play betting that won't last. For that you need a good understanding of greeks.

Uncovering such opportunities requires a lot of work. Personally though, I don't see how else you get an edge as a retail trader doing non-price-directional plays. I see a lot of people here looking for some magic position that will put the odds on their side even when a stock's options are trading as they usually do. I wish everyone luck, but I'm skeptical.
More...

How about trading the volatility skew?
 
Quote from Rudolf13100:

How about trading the volatility skew?
More...

If you can find a volatility skew anomaly where the bid/ask spread is reasonably tight then yes, that can work.
 
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