Yes you are right and I was talking b*llocks :( The risk of course is that the correlation (+1) won't hold. This type of strategy is new to me,...
Isn't the whole objective of a dispersion trade to capture the difference between component IV and index IV ? Where the index is 100%...
Ah, I see where you're coming from. Yes, you'd be net short Gamma across 2 different markets. Expensive gamma sold (stocks) against cheap gamma...
To answer my own question, the basket vol is 9.903%. Finally got my head around the main formula;...
Correct, Iâm long correlation and short dispersion. I too donât know what you mean here. The correlation between two stocks is essentially the...
They are hedged, UKX is the component index, of which I'm long.
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Yes, I'm running a live model started last Friday (18th Nov)...and this was a snapshot of the portfolio 5 minutes ago. <TABLE border=2>...
I still donât follow you. Maybe weâre talking cross purposes here, outliers in what context ? WtdCompIV ignores correlation between the...
The trade(s) would be done as close to ATM where possible, so don't follow your thinking wrt outliers. That has been my recent intuition, so I...
That is exactly the strategy that I'm working on. Since I'd be long correlation (short dispersion) the "flaw" is that correlation of the chosen...
SV = HV.....right. Another question for you.....how does HV come into the equation when dispersion trading ?
What's "SV" ? and what's it's relationship to IV ? Thanks.
mystic Very interesting, many thanks. A compelling case for a reverse dispersion trade then ?
How do you choose the components ? What percentage weighting of the index do you replicate with your basket of stocks. Thanks.
mystic Thanks, I have the formula. Just need someone to work an example....
I agree. But in my endeavour to learn, I need to start from basics. I need some help in the basic calc....Hence the above post. I'm sure...
Anyone ?
Stock 1) IV 25%, index weighting 20% Correlation 0.90 Stock 2) IV 20%, index weighting 30% Correlation 1.10 Stock 3) IV 20%, index weighting 25%...
Thanks guys. I'm going to do some homework....
Separate names with a comma.