Cboe Global Markets is aiming to position an exotic options trade used by hedge funds to profit from stock dislocations, as a more mainstream option for investors with the launch of the Cboe S&P 500 Dispersion Index (DSPX), according to a report by Bloomberg.
The new index, which is designed to capture price differences between options on the S&P 500 and its underlying constituents, made its debut on Wednesday.
So-called dispersion trading, involves betting on how benchmark indices will fluctuate relative to the volatility of individual stocks within those indices and is a strategy often employed by volatility hedge funds and banks. A number of funds specialise in dispersion trading, including the Fulcrum Equity Dispersion Fund and the Systematic Dispersion Fund.
The new index allows investors to bet on how much the the S&P 500 will move compared to the ups and downs of the stocks that make up the index.
And according to Bloomberg, Cboe Global Markets has plans to develop futures products tied to DSPX by the second quarter of the next year.
