Please, be more explicit. Or putting it differently, Is there somewhere a website or a book dealing specifically with the practicalities of these questions ??
You have the basic idea. Without getting into proprietary implementations; it should be easy for you to put it up on a spreadsheet with a data link and play around with the theory for a couple of months to get comfortable ...
there isn't even 20 stocks in the bbh and 5 stocks make up more than 50% of the index. smh has less than 20 stocks. sox has less than 20. xau has less than 15. osx has less than 20. i wouldn't even think of trading this strategy unless it was a small highly correlated sector. i think your capital needs are whatever you want the size to be, and you can be virtually riskless. add in a couple of different tweaks and you have the makings of something highly profitable. it's a valid strategy and it works. i don't know about ivolatility, but do look into it.
I don't think the conversation is limited to such a narrow trade. I think we are talking about multiple sectors ...