Because daily EOD data is readily available. I would always try to include as much data as I could, not exclude it. If âhourly or minute by minute or tickâ data was readily available Iâd use that as a preference. The more data you include the more accurate the picture, no ? After all, it doesnât cost anything. Impressive ! Welcome. I know it used to be a moneyspinner, maybe so in the future, but not now, at least not in the UK market.
How do you look at implied index correlation, and what are you looking for? I've only heard of using dispersion as a hedge against options on individual stocks, e.g. sell some puts on individual SP100 stocks and buy OTM OEX (or XEO) puts.
By comparing the implied vols of the index options with the implied vols of the component options, then calculating an implied index correlation (IIC) between the components stocks. Itâs complicated, but as a very simple example, if you have a 2 x stock index with both stock vols at 20% and the index vol at 20%, then the implied correlation between the stocks is +1. Same example but with the index vols at 14.14% then the implied correlation between the stocks is 0. With the implied index correlation close to +1 youâd look to run a long dispersion/short correlation trade (short index options / long components options). With the implied index correlation close to zero youâd look to run a short dispersion/long correlation trade (long index options / short components options). As I said, last time I ran the calcs the UK market IIC was running at +0.40, which wouldnât warrant either dispersion or reverse, IMHO. But that will change !
I have read quite a number of posts over the past year that the reason some traders are now reluctant to sell premiums in index options is because VIX is at historical low dropping from over 40 to about 10 now. My question is : is there a similar drop in implied volatility of stocks IN GENERAL? I mean, I still see stocks having IV of 30 to 60. Why aren't more people selling premiums in stocks???