Wed Jan 29 19:40:00 UTC 2025: ## Unexpected Winner Emerges from Market Crash: “Dispersion” Trading Strategy

**New York, NY** – A bet on market calm unexpectedly soared amidst Monday’s tech-driven market downturn. The “dispersion” trading strategy, which profits from differences in volatility between individual stocks and the overall market index, saw its best day since 2020.

The strategy, popular with hedge funds and banks, involves buying options on individual stocks while simultaneously selling options on a broader market index like the S&P 500. It thrives when the index remains relatively stable despite significant fluctuations in individual stocks, a scenario perfectly illustrated on Monday.

While tech giants like Nvidia and Broadcom plummeted by 17%, the S&P 500 only fell 1.5%, and the VIX (volatility index) increased by a mere three points. This low correlation between individual stocks and the index created ideal conditions for dispersion trades. Several major banks, including JPMorgan Chase, Citigroup, and BNP Paribas, reported their best day in nearly five years for their dispersion-based products. The Cboe S&P 500 Dispersion Index also reached its highest point since 2022.

Michael Purves, CEO of Tallbacken Capital Advisors, attributed the success to the surprisingly low correlation between stocks, despite the initial perception of a broad market sell-off. The low correlation, he notes, explains the relatively muted increase in the VIX.

The success of dispersion trades contrasts sharply with their performance during previous market sell-offs, such as the December tech sell-off and the August carry trade unwind. While concerns about over-crowding in the dispersion trade have been raised recently due to its increasing popularity and the low implied correlation across the S&P 500, BNP Paribas’ Xavier Folleas suggests that the correlation may now be structurally lower due to the diverging behavior of tech megacaps from the rest of the market.

The strong performance of dispersion trades highlights the tech-focused nature of Monday’s decline. Other quantitative strategies that capitalized on the divergence between tech and the broader market also saw significant gains. One strategy that buys stable stocks and sells volatile ones experienced its best day since 2020, while another favoring cheaper stocks saw its best performance in seven weeks.

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