Cboe S&P 500 Implied Correlation Indexes
Using SPX options prices, together with the prices of options on the 50 largest stocks in the S&P 500 Index, the Cboe S&P 500 Implied Correlation Indexes offer insight into the relative cost of SPX options compared to the price of options on individual stocks that comprise the S&P 500. The Cboe S&P 500 Implied Correlation Indexes may be used to provide trading signals for a strategy known as volatility dispersion (or correlation) trading. For example, a long volatility dispersion trade is characterized by selling at-the-money index option straddles and purchasing at-the-money straddles in options on index components. One interpretation of this strategy is that when implied correlation is high, index option premiums are rich relative to single-stock options. Therefore, it may be profitable to sell the rich index options and buy the relatively inexpensive equity options. The webpage www.cboe.com/ICJ has more information and a link to a spreadsheet with S&P 500 Implied Correlation Indexes - Historical Data.