Condor Options

A former head of an institutional equity desk is starting a fund to do some dispersion trading. That’s the “news” that apparently warrants a piece today from Bloomberg. Call the strategy whatever you want – “equity index correlation,” “disaster magic,” or whatever – dispersion trading is a well-known, generally respected strategy that has also been around for ages. The gist is that, if you think correlations will decrease, you can sell the volatility of an index and buy the volatility of its constituents. Or if you think implied correlations are too low, do the opposite. The concept isn’t so hard, but the technological and financial barriers to entry are high. Even so, everyone with enough money has been doing this for years.

So why does the fact that someone is launching a fund to implement a well-known strategy deserve a free advertisement coverage in a major financial news outlet – including claims about targeting 15% annual returns after fees, with no data to back that up? To anyone familiar with options, this almost reads like an Onion article. Perhaps Bloomberg would like to write a story on the fund I’m thinking about launching, tracking an awesome new “gamma confirmation” strategy. (Don’t tell them it just involves buying calls and puts on momentum stocks.) Do you have any warmed-over strategies with sexy titles you’d like to promote? If you have a pedigree and a public relations assistant, you too can be in the news!

Note: this post initially had the correlation decrease/increase expectations reversed. Thanks to Justin at Macro Risk Advisors for catching the error.