Did you ever work at Salomon?Your style is eerily familiar... You wrote any good dispersion trader is gamma flat or long. I am referring to long equity vol/short index vol.Call it anything you wish... I then ask you,apx what underlying notional must you sell in index options to be flat gamma/vega?? Would you say its 1.5 x the equity notional or would you say its closer to 2x??? Perhaps i should have said you have a directional bet on.If your options are of the same maturity and you are running a gamma flat book,what do you think will happen on the downside even as correlation approaches 1??? All i am saying is if you are flat gamma/theta in that specific trade,there is a definite directional element and most funds will not let you trade it gamma flat.They would not view the trader as a competent dispersion trader..
I was briefly at Salomon in 1991. I refuse to sell cheap gamma, so long street/short index isn't in my bag of tricks under 95 corr. Yeah, it would likely require >1.5x notional. I was implying that I would err to excess long gammas, in notional-terms. Simply: bullish dispersion, long notional premium.
I think our paths have crossed That was my only point..Alot of guys who just cant buy vol,will attempt to run a dispersion book gamma flat as the next best choice...And they get spanked on any good correction... I am with you,I just cant bear to sell this gamma....
Auto-responder says he's currently busy with book till September 2nd (past)...so probably running behind schedule LOL.
Gotcha, I misunderstood. =) Yeah, I can't bring myself to sell index gamma unless I am net long size, and then it's simply placing a bet. I'd rather buy correlation thru the short vol-swap and take my hit on component outliers.