Dispersion
Definition · Level 5 · Greeks & volatility
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A trade that sells index volatility and buys the volatility of its members, with vega matched. It wins when the stocks move apart, with realized correlation below implied, and loses when they move together.
Example
Short the index straddle, long the single-stock straddles.
Where Tradecraft teaches it
Level 5 · Greeks & volatility, in the lesson “VVIX and dispersion”: The volatility of volatility, and the gap between index vol and the vol of its members.
Related terms
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