Options Trading: How to Trade Volatility Dispersion

See the latest tastytrade videos: http://bit.ly/1s1L9nu One trade that Tom Sosnoff and Tony Battista have been placing for a long time is known as index arbitrage. This is also as Dispersion Trading. Here, an investor uses a strategy of selling (or buying) index option premium and buying (or selling) equity option premium in a delta neutral fashion. By its nature, an index will have lower risk and lower volatility than its individual components. The guys also take a look at Alpha. Alpha is best thought of as the excess return over a benchmark that can be attributed to the skill of the portfolio manager. However, here we attribute alpha as the choice of volatility-based option overlay (i.e. the dispersion between volatilities). This is often done by institutions that have long stock portfolios when they sell calls against the index, instead of the individual stock. Today, the guys look at a basket of stocks whose Implied Volatility is higher than the over all index. This provides them with an opportunity to place a dispersion trade taking advantage of the IV differential. By implementing this strategy, you are able to add Alpha to your own portfolio! ======== tastytrade.com ======== Finally a financial network for traders, built by traders. Hosted by Tom Sosnoff and Tony Battista tastytrade is a real financial network with 8 hours of live programming five days a week during market hours. Tune in and learn how to trade options successfully and make the most of your investments! http://goo.gl/EaF69C Subscribe to our YouTube channel: http://goo.gl/Szl24S Watch tastytrade LIVE daily Monday-Friday 7am-3pmCT: http://goo.gl/EaF69C Download our mobile app, Bob the Trader: http://goo.gl/zgIyco Follow tastytrade on Twitter: https://twitter.com/tastytrade Become a fan of tastytrade on Facebook: https://www.facebook.com/tastytrade Follow tastytrade on LinkedIn: http://www.linkedin.com/company/tastytrade Follow tastytrade on Instagram: http://instagram.com/tastytrade Follow tastytrade on Pinterest: http://www.pinterest.com/tastytrade/

Comments

1. are there services that take the work out so can make this easier to figure or if not can you name funds/managers that do this?