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Re: Concept & calculation for "dispersion"



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The concept that dispersion has prediction power has some validity.  Carpenter's
work, however is severely flawed.  The comment that if all stocks went from 10
to 11 would generate a condition of 10% vol. is absurd.

Dispersion, when larger is the cash instrument, then in the implied of the cash,
has seemed to lead to higher process lately.  In effect when you measure a short
term actual vol. and it exceeds implied things appear to go up  ...... the
concern is everyone I know who has studied, observed, or traded this
relationship .... has done so lately when many many things are going up.  I
suspect that this condition is demonstrating a "fat tailed" distribution ...
other suspect it may be a momentum measure and others a money flow measure.

It tends to work pretty well and I use it to trade big cap nasdaq stocks ....
here is the problem.  I first saw it in practice in late 1999.  It may merely be
simply a good environment to trade big cap nasdaq.  When it inverts I use it as
a sell signal .... and again it has worked well (baring vol. noise such as
earnings  .... which create a natural increase in implied).  I would strongly
suggest you test it yourself.

"M. Simms" wrote:

> For all of you options people.....
> the recent "Striking Price" article in Barrons mentioned the concept of
> dispersion which is
> supposed to be different than volatility.
>
> A guy named Carpenter indicates that dispersion has prediction power....when
> used along with VIX.
>
> Has anyone seen this in practice ?
>
> How can dispersion be calculated ? It seems to be a sort of directional
> volatility....
> if all components are girating in the same direction, then dispersion =
> zero, but volatility could still be high.
> Dispersion would be greatest when half the components are going up and half
> are going down....
>
> interesting.