Volatility Dispersion Strategy

Discussion in 'Options' started by Mispe, Nov 15, 2002.

  1. Mispe


    Is there somebody with experience on this strategy ?

    This strategy is mentionned on
  2. Not for the undercapitalized ...
  3. Meteoxx, when you say it is not for the undercapitalized, is it because the drawdowns of this strategy are potentially big so you need to have enough capital so as not to get flushed out sooner or is it a very capital intensive strategy wherein you need a lot of $ to capture the enough teenies to make it worth your while? Thanks
  4. Both.
  5. "To make a small fortune it is best to start with a larger one."
  6. raa1010


    no more capital intensive than having option positions in 5 or 6 stocks at one time. it's simple and straight forward, not much different than pairs trading, except you are placing a bet that one of the stocks will not correlate with the index.
  7. Mispe


    Metooxx. You seem very aware about this strategy. Could you be a little more explicit.
    Talking of possible drawbacks don't you think that if the good parameters are carefully selected, volatility, correlation etc..., as the EGAR Dispersion program is intended to, the risk could be seriously limited ??
  8. I do not think you can make a living doing this on less than $100-$250K in capital. Utilizing only 5 or 6 positions, your hedge is not going to hold very well. I would think around 25 would be about right.

    Obviously one could do it with 1 lots; however this is not typically done intraday, or even over just a few days.

    Size is your friend here ...
  9. It is not very risky as long as you have diversification ...
  10. Mispe


    Thank you Metooxx

    So not only dispersion but also diversification !

    The idea is one short strangle on the index and a long strangle on components representing 30 to 40 % of the corresponding index (all options close ATM). It has to be be hold, I suppose, at least 2 or 3 weeks.

    I still am scared with the shorts.

    I am not limited by capital or by time. I just try to find a strategy as neutral as possible with limited risk. It could be that or something else.
    Delta Neutral trading or Gamma scalping is a lot of work and follow up, for a very small result.

    Anyway I am tired of directionnal trading (for index or equities).

    I could sell premium but did not yet find the good strategy.!
    #10     Nov 16, 2002