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- 037Volatility
Dispersion trading
Dispersion often expresses a view on constituent correlation by buying single-name volatility and selling index volatility. Index variance combines weighted constituent variances and pairwise covariance; all else equal, higher realised correlation raises index variance. Option P&L also depends on implied-versus-realised volatility, skew, jumps, weights, rebalancing and gamma path.
- 038Arbitrage & relative value
Intraday arbitrage between index ETFs
Same-index ETFs are closely related, but fees, cash holdings, sampling, FX, time zones and liquidity can create persistent differences. An intraday signal needs synchronised prices, dividend and split adjustments, executable bid/ask, borrow, impact and exit rules. NAV or iNAV may not be tradable in real time, especially across time zones.
- 039Hedging & risk management
Volatility targeting
A volatility-targeting rule scales base exposure by target volatility divided by estimated realised volatility, then applies leverage and position limits. It scales risk; it does not create a positive return forecast. Inverse-volatility allocation, risk parity and minimum-volatility portfolios are related but distinct.
- 040Volatility
VIX futures basis／term structure
VIX futures reference a future VIX settlement, not spot VIX. Near futures below deferred contracts is contango and can create negative roll pressure for long exposure; backwardation can reverse it. Product returns also include futures-price moves, collateral yield, fees and roll rules.
- 041Volatility
Variance swaps
A variance swap pays the difference between realised variance and a variance strike. In annualised volatility percentage points, the variance difference is the difference of squared volatilities; variance notional converts variance points to currency. Terms define sampling, annualisation, missing prices, jumps and settlement. It differs from a volatility swap, which pays on volatility differences.
- 042Arbitrage & relative value
FX triangular arbitrage
Triangular arbitrage compares a direct FX rate with the cross rate implied by two other quotes. EUR/USD and USD/JPY imply EUR/JPY through multiplication. An executable cycle needs the correct bid/ask for each leg, synchronised timestamps and consistent notionals; a mid-price residual is not risk-free profit.
- 043Factors & multi-factor investing
Hedging pressure
CFTC COT reports aggregate reportable futures and options positions by market and trader category. Hedging pressure often compares commercial and non-commercial net positions relative to open interest. Positions are a Tuesday snapshot released Friday; commercial status reflects business purpose, not necessarily bearish or bullish conviction.
- 044Hedging & risk management
Diversification into a low-correlation asset
A two-asset portfolio return is weighted; variance also includes a correlation term. With correlation below one, portfolio volatility may be below the weighted standalone volatility. Risk depends on weights and estimated volatility/correlation. A low-correlation asset is not automatically a crisis hedge.
- 045Factors & multi-factor investing
Skewness premium
A skewness-premium strategy ranks commodity futures by the third standardised moment of past returns. Representative research reports a return spread between negatively skewed longs and positively skewed shorts, but this is not a universal law or proof that skewness causes future returns. Sector concentration, futures rolls, margin and tail moves can dominate.
- 046Arbitrage & relative value
Trading with pricing models
A trader may model a futures curve with a mean-reverting or multi-factor process and compare market prices with model values. A residual merits investigation only when calibration is credible, signal data are point-in-time and trading costs are realistic. This tool reduces the setup to market price, model price and assumed convergence; it does not estimate OU parameters or optimal entry/exit boundaries.
- 047Hedging & risk management
Hedging with futures
A holder of cash or future physical exposure can reduce price risk with an opposing futures position. The minimum-variance hedge ratio is h*=ρσS/σF; contract count also scales spot and futures notionals. Rate hedges may match DV01/BPV. When the contract is an imperfect proxy, prices desynchronise or correlation falls, the hedge will not eliminate P&L variation.
- 048Arbitrage & relative value
Futures calendar spread
A calendar spread pairs the same underlying across maturities. A bull spread is typically long nearby and short deferred; a bear spread reverses those legs. The thesis concerns near-versus-deferred relative strength. Pairing may reduce some outright exposure, but does not remove spread widening, delivery or contract-month liquidity risk.