Options Strategy: Exploit the Correlation Crush

In a recent piece I discussed the use of a paired options trade strategy to capitalize on a decline in correlations in 2014. Correlation refers to assets sometimes in very different classes moving up and down at the same time. Today I want to look at the concept of dispersion. With paired trades we used options to reduce capital requirements and increase leverage provided to improve the risk/reward profile. Dispersion refers to how much more or less the individual components within a broader group (like an index) will move relative to the whole. Here the application of options is more ...