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Dispersion – A Guide for the Clueless

28 Mar 2015

Article by: FDAXHunter
Published by: Capital Structure Demolition LLC
Date: Jul 2004

“Once upon a time dispersion trading desks used to be the kings (and queens) of volatility trading in the equity arena (if we ignore the 35 mio USD short vega position by LTCM).

“Dispersion desks can handle significant volatility risks in the same way that a basket desk can handle extremely large deltas per instrument or a cap/floor vs. swaption trader can handle extremely large volatility risks per underlying. As a matter of fact, a dispersion trader is essentially a cap/floor vs. swaptions trader, albeit somewhat less structured. Dispersion traders can come into a single stock and sometimes sell signifcant vegas (read: millions) before anyone knows what is happening.”

Full article (PDF): Link

 
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