Hi, Suppose I have a market data minute by minute for last 6 months where I have following information's: Underlying asset prices which is Index Future ( I have its closing price) Option 1 on this Index futures Option 2 on this Index futures Option 3 on this Index futures I have four component data, Option on the component 1 future option on component 2 future option on the component 3 future option on the component 3 future Suppose I have all the data in CSV file. Now if I want design Dispersion or Volatility arbitrage strategies based on the above data. How should I do it. I know few things I need to calculate like HV series for each underlying, IV series for each options. Now How will I create trading signals on my strategies. What should be the formula and criteria s I should choose. and How should I optimize the strategies then? I hope this question would help many of us who are new to dispersion. Thanks, Ak
That's the art of dispersion. Figuring out the criteria to put on and take off the trade. Generally you need a signal to tell you that realized correlation is going to be less than implied AND realized vol will be less than implied if you are trading equity index dispersion.