Why is dispersion trading become successful

Question

Why is dispersion trading become successful?

Answer 1

• Dynamics of markets are additional complex than can be captured through the simplistic thought of correlation.
• Index options might be expensive due to large demand, hence good to sell.
• You can select to buy options on equities which are predisposed to a high degree of dispersion. For illustration, focus on stocks that move dramatically in various directions during times of stress. It may be because they are in different sectors, or since they compete with one another, or since there may be merger possibilities.
• Not all of the index constituents require to be bought. You can decide to buy the cheaper equity options within terms of volatility.