SPX has mostly had boring sessions since November. all this recent excitement under the surface has barely registered
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you'd prob sell wide strips of S&P options against wide strips of singlename options weighted on the component index weights, approximately replicating volatility swaps on each underlying, and then dynamically manage that portfolio over time to ~zero vanna/volga
What are your thoughts on dealers who package this correlation trade and offer it as a swap?
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in practice the implementations vary widely. things to consider: 1) all-in costs, gross vs net performance history 2) trade construction and portfolio management. if variance swap based, very risky. if fixed strike: what does it to to mitigate path dependence?
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3) embedded "surprises": is it simple delta hedging on the close, or does it include other "smart" features in hedging logic, and are they appropriately sized from a risk perspective? 4) market neutrality: what is the vega hedge ratio, if fixed strike is it bls or skew delta?
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