Dispersion Strategy

Discussion in 'Options' started by rmontino, Dec 16, 2008.

  1. rmontino

    rmontino

    Newbie. I found out about dispersion trading here on ET a couple days ago. Thank you. I've also read some really entertaining threads. :).

    2 questions on dispersion:

    1) I see the wisdom in maintaining a delta neutral portfolio with adjustments (taking profit) when the market moves significantly. Using the dispersion strategy, the cost of commissions and bid/ask spreads can accumulate quickly. My question is, does the strategy break down if one were to hold all long and short straddles until expiration? Anecdotally looking at charts, it would seem to be still valid.

    2) For an individual account, buying 500 straddles and selling a SPY straddle is obviously prohibitive. Is buying 18 straddles, 2 each from the 9 GICS sectors, for 25-30% of the index a good approximation?

    Thanks in advance
     
  2. rosy2

    rosy2

    look int factor / principal component analysis. you dont need to replicate the entire index